When you’re taking out a loan, you should know the specifics of how the loan is going to benefit you. You don’t want to spend time and money securing a loan that isn’t right for you. Knowing the advantage of taking out a loan allows you to plan your finances, reaping the benefits where possible, and finding the most favorable terms for you.
The cash you receive isn’t the only advantage that comes with a loan, so we’ve covered some others below. If you want to see some of those advantages in action, you should check out how CreditNinja approaches cash loans.
1. Higher Borrowing Limits Than Credit Cards
With a loan, you can potentially borrow more than with your credit card. The spending limit of a credit card will depend on so many factors, from your credit score and income to your debt-to-income ratio, bankruptcy record, and payment patterns.
Loan providers look at a lot of the same factors but the borrowing limits of personal loans tend to be more generous. The limits still vary by lender, so anybody looking for a loan should shop around and find generous lenders who offer the most favorable terms.
2. Lower Interest Rate Than A Credit Card
At the same time, personal loans also tend to have lower interest rates than those involved with a credit card. Where borrowers are comparable, they can typically find a more favorable deal with a loan instead.
With unsecured personal loans, you can typically expect an APR of 5% to 6% when a borrower has a decent financial record. Meanwhile, credit cards with low APR don’t often come below 10%, with borrowers’ financial records having little to no bearing on the interest rate.
Credit cards often come with a no-interest period before the interest rate is hiked up. Borrowers should get a loan that won’t change terms on them, so they can better prepare for the future.
3. Shouldn’t Need Collateral
Assuming you’re a borrower with at least a neutral credit score, you should be able to get a loan that isn’t secured against any assets you own. This means that, in the event where you don’t pay the loan, you won’t have your car, possessions, or even your property seized. If you have a poor credit score, you may need to take out a secured loan instead.
4. Predictable Repayments
When you get a personal loan, you will have repayment terms ironed out before you receive the cash. These will typically take the form of monthly payments. In any case, credit cards and lines of credit aren’t so predictable when it comes to how you pay them off.
By taking out a loan, both you and the provider agree on the terms before committing to anything. Borrowers know exactly how much they should pay and when, and the interest rates are fixed and won’t change like they can with credit agreements. Naturally, this makes planning for the future much easier.
5. Longer Repayment Terms
While comparing personal loans with other similar methods of sourcing money, loans typically carry longer repayment terms. Most of them can take years while others, like payday loans, will expect a much faster repayment while burdening the borrower with higher interest rates.
By having a longer repayment term, borrowers will pay less with each installment and adopt a lower interest rate over time.
6. One Loan Is Easily Managed
If you can get one loan that caters to your financial needs, that is much easier to manage than having multiple credit cards on the go, each with different interest rates, spending limits, and payment dates, etc.
Borrowers can even consolidate existing credit card loans into a personal loan, swapping higher interest rates for something more manageable and reaping all of the other benefits in this list at the same time. Multiple pre-existing credit card payments can be turned into one simplified contribution made every month.
7. Can Be Flexible
Some loans are designed to cater to a specific purpose. Loans for your car or for business equipment can only be used to fund those items instead of other things. Personal loans, however, are more versatile and can be used for whatever you want.
If that’s what you want from your loan, make sure that your personal loan has no spending restrictions placed on it. When borrowers need to finance a purchase but want to be free to spend the money however they please, personal loans are ideal.