Tag: credit score

6 Situations when you should apply for Personal Loans

Emergencies may strike anytime. Unexpected expenses may crop up and one may not have enough funds to meet those expenses. At such times borrowing money helps one to keep moving forward. A personal loan is an ideal choice in such circumstances. These loans are usually unsecured i.e you are not required to provide any collateral to get the loan. One has the flexibility of using the money for whatever purpose one wants. Besides, these loans are easily available. But that does not mean that it is the best choice for any circumstance. Here are 6 good enough reasons when one can depend on the personal loan.

To consolidate your debt

If you have multiple debts with different creditors at varying rate of interest, sometimes it becomes difficult to manage. Each debt has a different payment due date, because of which you may miss some unknowingly. A smart way to handle multiple payments is to consolidate the debts by taking a personal loan. You can use the loan amount to pay off all the previous debts. Now you will need to make only a single payment every month.  If the previous debts were taken at a higher rate of interest than the rate at which you get a personal loan, then such action will help you save on interest costs as well.

Pay off credit card debts

Because of the unsecured nature of personal loans, the rate of interest on these loans is generally higher than other types of loans. But this interest rate is still lesser than what is charged by most credit card companies on the outstanding credit card balances. Hence a smart way to gain significant savings is to take a personal loan to payoff all credit card balances. However, this step will be beneficial only when you do not rack up more debt on your card. Since your credit limit will be freed up, do not give into the temptation of charging more expenses to the card. Otherwise this measure will do more harm than good.

Home renovation       

It may not sound a good idea to dip into your emergency saving fund if your require funds to carry out renovation work in your home. A personal loan is a better solution for this purpose. The application process is very simple and the funds are disbursed within a week’s time. So if you want to fix a leaking roof, redo your kitchen, change your bathroom fittings, or paint the house and do not have funds available immediately, you can surely rely on a personal loan.

Improve credit score

If you have a low credit score, the best way to get it back in good shape is to take out a loan and repay it diligently. Regular on time payments help to build a strong credit profile. But when your score is low, you may not qualify for loans from leading financial institution. However many online lenders offer personal loans for CIBIL defaulters at a slightly higher rate of interest. One may seek out these loans and make timely payments to improve one’s credit score.

Medical expenses

Whenever a medical emergency strikes, people often find themselves short of funds. Personal loan can be a saviour in such situations. They can be applied online and you can receive funds in a short period of time. For people who want to undergo a medical procedure but to not have sufficient money available can also use these loans to pay the bill, and then repay the loan in a structured way over a span of 3-4 years.

Major purchase

The best part about personal loans is that you can use the funds for whatever purpose you want. So if you need to buy an expensive item but cannot afford it right now, you can make use of the personal loan, and pay back the amount in equal monthly instalments that fit your budget.

A point to note is that the interest rate on this loan depends majorly on one’s credit score. So one must take care of one’s credit profile, in order to receive the loan at best rates.

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Secured Or Unsecured Personal Loan: Which One Should You Go For?

If you are looking for a personal loan, you must have noticed that there are two types of personal loans- Secured and Unsecured. Let’s take a look at the prime differences between these two options and the factors based on which one can decide which one to go for.

The fundamental difference is what stands behind these loans. A secured loan is backed by a collateral. In this case you agree to give an asset that acts as a guarantee for the loan. It serves as a security for the lender and protects him from losses. In case you do not make the repayments, your asset is claimed and sold off to recover the debt amount you owed to the bank. Therefore before going with this option one must be sure of one’s ability to make the repayments.

Unsecured loans do not have any collateral. Hence you do not stand a risk of losing any of your asset even in case you default. The only assurance that the lender has that you will repay your debt is your word and your history of past credit behavior. Hence lenders carefully evaluate your personal information like income, current debts, CIBIL Score and report to assess the level of risk involved in lending you money.

Even though the borrower risks losing his asset, he may still go with a secured loan under following circumstances.

When you need a higher Loan Amount

The amount of loan that you can get sanctioned is usually higher in case of secured loans. Since unsecured loans are riskier for the lenders they do not approve very huge amounts.

When you have a low CIBIL Score

In order to qualify for an unsecured loan, one generally needs a high CIBIL score. A good credit standing helps in winning the trust of the lenders. But if your CIBIL score isn’t high enough to get easy approval for unsecured loan, you may apply for a secured loan. Since the risk of the lenders is lower in this case, they do not have strict rules of having a minimum score. Hence they are easier to qualify for.

When interest cost difference is substantial

Secured personal loan interest rates are usually lower than the unsecured ones. One gets better terms and conditions and a longer duration for repayments. A longer term means that the monthly repayments will be smaller. Hence, if you have an asset to put as a collateral and you are sure of your ability to repay the debt, it is a wise decision to opt for a secured loan to save on interest costs.

However, processing of a secured loan may take a little longer. The lender may want to get the collateral valued to make sure that it is enough to cover the borrowed amount. The processing fees and other charges would be higher too. An unsecured loan becomes a better choice under following circumstances

  • When one needs to borrow a small amount of money for a short period of time
  • When one has a stellar credit profile and an excellent CIBIL score that helps one to qualify for the best personal loan interest rates.
  • When you do not have any collateral to back your loan, or you do not want to put your assets at risk.

Defaulting on loans

Defaulting on secured as well as unsecured loans will affect your credit report and CIBIL score negatively. If you default on payments of a secured loan, the lender can legally take possession of the asset. The proceeds of the sale will be used to settle the debt. In case of unsecured loans, the bank cannot claim your property. But it can put your account into collections and take legal action to recover its debt. Late payments, Missed payments and account that go on collections will severely tarnish your credit profile. When potential lenders check your credit history, such remarks will deter them from lending you money.

Check your CIBIL score today, and find out whether you can qualify for the best loan interest rates. This will help you start your decision making process.

Credit card is a 2-way sward

Instant access to cash and credit is the best boon one can get. But we have a balance in this universe. As the boon exists, even the curse exists. It is us who have to be responsible enough to not change the boon to curse. With credit cards so easily available, it has become easy to shop and utilize it to get things which otherwise we can’t get if we do not have cash. But with this ease of instant access, there should be equal amenability to repay the credit one has got. As the title suggests the credit card, is a two-way sword. It’s not just the facility you have got. But also the responsibility you have to keep towards it. Let’s simplify this by example.

Santosh, a very enthusiast young blood, highly educated and with lot of brains has just entered his professional career. Its been 6 months to what he has started earning, but with a handsome salary package, he is reward with lots of perks. He applied for a credit card as he saw his bank offering him with good offers. What else he wanted. Instant access to whatever he wanted to buy online, or where ever he wanted to travel. All he had to do is go somewhere and swipe his card, and pay a month later and not instantly. Or he had to enter his credit card details if it was online payment. For first few months things were good. He used his credit card. It also helped him build his score and increase cibil score. But as time passed, he started becoming reckless. He made use of his credit card everywhere without making sure if he was equipped to make the payment when the bill came. This happened for 2-3 months. He kept on paying only the minimum amount and the access was carried forward for next bill. This added the major percentage of interest rates. Now the time came when he planned to take an auto loan.

So, he went to a bank and inquired about the loan and other formalities. But, the first bank denied. When this happened to 3-4 banks, he went to dig through with-in, then he came to know that he had screwed his credit score, and that was the reason behind his rejection of loans.

We need to understand this logic, you can’t be “penny wise pound foolish”. Once the credit score is goofed up, it takes a long time to repair it. Bad credit fix needs lot of patience and work. The score might just get ruined in 3-4 months, but to take it up, it minimum takes 7 months or more. When you approach the bank for loan, they check the score. It shows the behavioural pattern, you have borrowed the money which is not yours, so you are ought to repay. When it comes to credit card, it’s a revolving type of credit which is unsecured. So the credit score is affected big time. If worked wisely, it is the best method to boost your score either to build it or increase it.

Credit cards obviously give you the instant access of cash in the needy times. When you are stuck somewhere and do not have cash in hand, there is the requirement to pay,  credit is a boon and acts miracles. But, with this easy power, you have the responsibility. So, don’t be fool enough to not work just one side and take the advantage, but also stay sensible for the payments.

Its a simple logic, best things in the world are for free. And the power-responsibility goes hand in hand. When it comes to credit or credit card, it is a 2-way sward. With just the ease to walk smooth, the flip side is dangerous. Be patient and work diligently to deliver the best!