Personal loans are unsecured multi-purpose loans which give you funds to meet your financial requirements. You can apply for a loan with a bank or a financial institution and the loan is sanctioned at the earliest. The eligibility parameters of the loan are also simple and you get a repayment period of up to 5 years during which you can repay the loan affordably. Given all these benefits, a personal loan helps you in times of a financial requirement. But can personal loans help in saving you money?
Actually they can. If you avail personal loans for specific uses, you can end up saving money. Here’s how –
For consolidating your debt
If you have multiple small debts, you would also be paying interest on all of them. If you consolidate all your debts in one, you can save on the multiple interest payments. Personal loans help you in consolidating your debt and avoiding multiple interest payments. You can avail one loan to pay off all your existing debts and then repay your personal loan affordably. The multiple interest payments would be replaced by one interest payment which would be low and save you your hard-earned money.
For paying outstanding credit card dues
If you don’t pay your credit card bill on time, you face a late payment charge and also high interest rates. Credit card interest rates can go up to 50% per annum which is quite substantial. So, if you have credit card dues which you are not being able to clear on time, you can avail a personal loan for the same. Though personal loan also has an interest rate, it is very low compared to credit card interest rates. The loan would, therefore, pay off your credit card dues in a lump sum at a lower interest rate and save you from the incidence of high interest payments and late payment charges.
For improving your credit score
When you avail a personal loan, you create a credit history. Thereafter, when you pay the loan instalments on time, you create a favourable repayment history which helps in building up your credit score. A high credit score helps you in availing other loans in future at a lower interest rate. Thus, a personal loan indirectly helps in saving money by improving your credit score.
For helping in emergencies
In a financial emergency you need funds. If there is not sufficient balance in your savings account or other liquid investments, you need to utilise your long-term investments for getting the funds. You might withdraw from your fixed deposits prematurely or redeem your mutual fund investments. In both these cases you lose money. Premature withdrawal from fixed deposits not only reduces your interest earnings, it also attracts a penalty. Similarly, redeeming your mutual fund investments in a short period results in reduced earnings. You can, instead, avail a personal loan to avoid these situations and save money.
So, directly or indirectly, personal loans help you in saving money. They are easily available and you can use them for a varied type of financial requirements. So, if you need funds, look for personal loans for a cost-effective solution.