These days, you’ll never know when your credit score will take a hit. Emergency hospital bills, a surge in electricity and water costs, and other expenses may bury you in debt and leave you with a low score. Although taking on more debt may seem counterintuitive at first, a personal loan can be the solution you’re looking for.
Personal Loans: A Brief Overview
Personal loans provide you with the means to pay various types of expenses like bills or other debts if you don’t have a sufficient amount of cash to pay them off. Unlike an auto loan or a mortgage wherein the money only pays for specific expenses, personal loans provide borrowers with cash for whatever they may need. They’re versatile and don’t require any collateral.
Costly emergencies, high-interest debts, and home remodeling are some of the possible uses for these types of transactions. Many people apply for them because they just need quick cash that they can pay back later on.
Although personal loans are unsecured and do not need you to put up collateral, they’re riskier for lending institutions to give. As a result, they often have higher interest rates than secured debts like mortgages and auto loans.
Many banks and lending institutions offer personal loans, with terms varying depending on the amount you need, your credit score, and other factors. Lenders can approve your application within days.
Personal loans can affect your credit score either positively or negatively. There are pros and cons to these types of transactions, and it’s best to explore their potential impact before you apply.
The Benefits of a Personal Loan for Your Credit
It may sound counterintuitive to take on more debt to improve your credit score, but it’s an effective strategy if you can ensure to make on-time payments. Here are some ways that a personal loan can help you boost your credit:
Building Your Credit History: Individuals with bad credit scores or a relatively blank credit history can use personal loans to their advantage. Paying them on time and in full each month can help you build a positive payment history and boost your score.
Diversifying Your Credit Mix: Your score will also benefit from having diverse types of credit in your history. If your history mostly has revolving credit payments, such as credit cards, a personal loan can make an excellent addition to your mix.
Lowering Your Credit Utilization Rate: A low credit utilization rate (CUR) is key to keeping your credit score high. To do so, you must pay off your revolving credit. Taking out a personal loan to replace revolving credit is an excellent way to reduce your CUR.
The Drawbacks of a Personal Loan
Although they do have their benefits, these transactions also have their drawbacks. Here are some ways they can negatively affect your credit:
Giving You More Debts to Pay: At the end of the day, personal loans are still debts that you have to pay. They’re not the solution to all of your financial problems, and they do not address the underlying issues that got you buried in debt in the first place.
Having Additional Fees: Personal loans often have late fees or origination fees on top of the interest you’ll have to pay, so it’s best to make sure you can afford to shoulder these expenses before you apply.
There are many ways to deal with bad credit, and taking out a personal loan may be one of them. These transactions offer multiple benefits, but they also have the potential to negatively affect your score. It’s best to carefully consider both sides before deciding whether or not to apply.
If you’re looking for personal loans in Atlanta, GA, Central Loan & Finance is here to help. We believe in compassion and understanding and will always look forward to providing you with the finances you need. Get in touch with us and apply now!