5 personal loan benefits you need to know

For those wondering about the benefit of obtaining a personal loan, it helps to know that potential perks go way above and beyond simply providing you with access to extra cash. Rather, it’s important to note that taking out a personal loan can also help you accomplish big-picture goals like repairing or boosting your credit score and improving your creditworthiness for future loans.

In effect, personal loans don’t just have the potential to help you better balance a household budget and put more money in your pocket in the immediate. Put simply, if used responsibly, they also offer a surprising assortment of long-term upsides that you can capitalize on to improve your chances of becoming a successful homeowner or investor as well. Let’s take a closer look at the array of personal loan benefits that you can enjoy when you apply for one … and how to make such perks work in your favor.

Key takeaways:

• Personal loan benefits aren’t limited to rapid access to funds alone
• Borrowers can also improve their credit score, history and mix
• Obtaining a personal loan can help you improve access to future loans
• It can also help you enjoy access to loans on better terms and conditions
• Taking out a personal loan improves your overall creditworthiness to lenders

How to obtain a personal loan

Personal loans are small to midsize lending products that you can use for a variety of needs, typically ranging in value from $2,000 to $45,000. Exact loan value differs from lender to lender.

Any monies extended through one are issued in the form installment loan that is granted by a financial institution (bank, credit union, fintech, etc.) to an approved borrower. Under the terms of a personal loan agreement, you’ll agree to repay any sums lent over a fixed timeline, typically spanning a range of 2-5 years. A personal loan can generally be used as a way to pay for just about any need you desire, excluding potential exceptions like college tuition, a home down payment and assorted business expenses.

Getting a personal loan involves a relatively straightforward application process in which lenders assess your credit report and debt-to-income ratio (DTI) to determine your creditworthiness. Doing so helps lenders determine what potential level of risk you might present in their opinion, and these factors influence how much you can borrow and the interest rate of the loan.

How much you can expect to pay in APR on this type of loan varies by your individual credit score, credit history, and lender. Nonetheless, under the terms of most personal loans, the APR will be fixed for the duration of the loan. In other words, because the APR is not variable, you won’t have to worry about jumps in interest rates increasing your monthly loan payments in turn.

Note that in the case of personal loans, funds are typically disbursed quickly on loan approval – sometimes, within the same day. Once you have received any monies paid out from the loan, the repayment timeline goes into effect, and your lender will expect you to make monthly payments in timely fashion.

The 5 key benefits of a personal loan

Personal loans are a preferred loan option for many consumer borrowers for an assortment of reasons. At the same time, there are also five key benefits that make these loans such an especial perennial favorite for borrowers who need additional cash for expenses or to consolidate debt.

1. Personal loans offer flexibility

A major benefit that a personal loan tends to have over other competing types of loans is its overall versatility. Unlike mortgage, auto loan, or student loans, as a borrower, you have the option to use a personal loan for many different types of purchases and expenses.

Among the most common reasons for personal loans include:

• Consolidating your debt: You can use a personal loan to aid with debt consolidation efforts by utilizing it to pay off your outstanding debt and consolidating any remaining balances into a single monthly payment. In effect, personal loans tend to come with lower interest rates attached and also help you minimize confusion (by making it possible to not have to juggle multiple loans, each with their own particulars). Likewise, they can also help you refinance pricier debt down to a lower rate, thereby helping you lower your mortgage payments.
• Home improvement projects: Considering remodeling your kitchen, putting a pool in your backyard, or landscaping the front lawn? A personal loan has the ability to cover all or most of the costs for a big home improvement or remodeling project. Such a loan would normally be unsecured in nature – and may prove a better choice as a lending option than a home equity loan or home equity line of credit (HELOC), as it doesn’t require you to put your home down as collateral. Personal loans can be applied in a host of ways to help you improve the functionality and appearance of your home.
• Emergency expenses: Emergencies happen and, unfortunately, can come with high price tags attached. Such emergency-related expenses may come in the form of medical bills, funeral costs, or even costs of pet-related care. Ask yourself: When was the last time you saw a sprained ankle or dog or cat with a sick tummy coming in advance? These incidents can be hard to predict, and even harder on your pocketbook – thankfully, a personal loan can prove a huge help when it comes to helping you cover unforeseen doctor or vet bills.                                                                                                                                                               
• Large costs: Weddings, honeymoons, vacations, car expenses, and other major purchases can all put a big dent in your budget. After all: Cars are notorious for breaking down when you least expect it, and repairs can cost a pretty penny. Likewise, because you’re often hosting and catering for dozens of friends and loved ones, wedding expenses can quickly add up, as can the total bill for taking a family holiday. (Especially if you have a big family.) Personal loans can help you fund life’s pricier occasions.
• Investing in yourself: Perhaps you’re starting a small business or trying to get a new startup venture off the ground. Maybe you’re planning on attending career advancement events or obtaining a new professional certification. Whatever the case may be (even in the event of cosmetic surgery), a personal loan can help you better afford related expenses.

2. Personal loans let you access the funds you need fast

Applying for a personal loan generally takes less than 30 minutes. Approval can happen in a matter of hours, or even minutes, allowing for same-day approval in select instances. In effect, while a mortgage loan can take weeks to process, a personal loan offers a fast turnaround.

Typically, you can access funds from the loan in a matter of days, noting that as a general rule, most personal loans are finalized in 1 – 7 business days. Again, though: Select personal loan providers like Rocket Loans^SM can even get you your money on the same day that you’re approved with same-day funding.

That said, securing a fast turnaround depends on a fast response from you as an applicant to any queries that your lender may have. Delayed response times can delay your access to cash, making it important to maintain a good line of communications with prospective lenders at all times.

3. Personal loans help you boost your credit score

Taking out a personal loan can affect your credit score in a positive way, not only by opening the account but also by creating an opportunity to demonstrate your overall creditworthiness and ability to make timely payments.

Note that your score may drop slightly as a result of a lender’s hard inquiry at first. However, making regular on-time monthly payments can demonstrate your financial acumen and improve your credit score so that you could gain access to more lending options… and get even better rates and terms from future loans. That’s an important fact to keep in mind, noting that 35% of your credit score is based on your payment history.

Also, looking at the general factors that impact credit scores, having a personal loan among your other debts can help you diversify your overall credit mix, also seen as a favorable development in the eyes of prospective lenders. Keep in mind that using one to pay off your credit card balance can help lower your credit utilization rate too, another factor that impacts your credit score.

Taking out a personal loan essentially allows you to show that you’re able to responsibly balance yet another form of credit, and establish a winning track record for doing so.

4. A fixed repayment schedule

Personal loans also offer borrowers the benefit of enjoying access to a fixed interest rate. This means that your monthly payment will remain predictable and stay the same throughout the entire life of the loan. In essence, you’ll know exactly how much money to budget for in your household expenses each month, eliminating any monthly payment surprises.

In other words, because both your monthly bills as well as the interest rate that you’re charged will remain the same month-to-month, it’s much easier to simplifying budgeting and management of these accounts. If you’re approved for a lower interest rate, it’ll stay that way for the life of the loan, which can be especially helpful if you’re looking to plan for a fixed income scenario such as retirement.

As opposed to a credit card, where the monthly amount of your billings can change depending on how much you spend, personal loan payments can be much more predictable. In fact, many borrowers look at the opportunity to consolidate high-interest credit card debt to be among the leading personal loan benefits.

5. Personal loans don’t require collateral

In most instances, personal loans are unsecured… meaning that they’re not backed by collateral such as a piece of real estate property or vehicle. Rather, obtaining a personal loan is based primarily on your credit history, credit score, DTI ratio and other factors. Unlike with secured loans, you aren’t at risk of losing valuable assets in the event that you fail to repay the loan.

As you might imagine, an unsecured personal loan is the most common type of personal loan issued today because borrowers don’t have to put down any collateral in order to qualify.

However, unsecured loans don’t come without risk. A defaulted personal loan can remain on your credit report for up to 10 years and can affect your ability to take out loans in the future. That’s why it’s important to do your homework, compare offers from different lenders, and crunch the numbers to make sure that you can afford the monthly expenses that come with a personal loan.

When to consider a personal loan

Personal loans are often an ideal loan choice for individuals with good or excellent credit scores. If you are unsure where your score falls, you can request a free credit report and score from one or all of the three credit reporting bureaus (Equifax®, Experian®, and TransUnion®). Your credit score will range from 300 to 850, and this is how each score measures up:

• 300 to 579: Poor
• 580 to 669: Fair
• 670 to 739: Good
• 740 to 799: Very Good
• 800+: Excellent

If your credit isn’t good or excellent, here’s the good news – you can actively take steps to improve your credit score over time so that you can apply for more favorable rates and terms.

What are the pros and cons of personal loans?

Personal loans come with both upsides and downsides attached. Although a popular lending choice, also be advised that such financial products aren’t for every borrower. We take a closer look at potential benefits and disadvantages below.

Pros

• Personal loans offer flexibility in spending and can be applied to a variety of everyday needs.
• You can receive the money that you need fast. Borrowers can generally expect access to funds within a week (at the latest).
• Personal loans can help improve your credit score, history and mix.
• Personal loans offer a fixed monthly payment, making them easier to plan and budget for.
• No collateral is typically required to obtain a personal loan.

Cons

• Individuals with lower credit scores may have less access to loans or face higher interest rates.
• Defaulting on a personal loan can lead to large hit on your credit score – and any default remains on your credit report for a decade.
• Individuals with a low credit score might be required to offer collateral to back the value of their loan.

The bottom line: Personal loans offer numerous benefits for borrowers

Life is full of unexpected surprises and tends to get pretty darn expensive at times – especially during important moments like when you’re getting married, making a new car purchase, starting a new business, or sending a loved one off to college. Naturally, a little extra cash can come in super handy during these instances … let alone when unexpected medical, auto or pet-related emergencies strike.

Taking out a personal loan offers potential benefits beyond just receiving a large amount of money in a short period of time, though. For instance: If you’re smart about your finances, and repay your debt on time each month? You can come out the other side of your loan with a stronger credit score, better credit history, and access to more (and better) loan terms and options.

Given rising costs of inflation and rising costs of living, many people of all ages, income levels, and backgrounds take out personal loans every year. That said, it’s also important to stay on top of your payments and not get behind if you want to avoid inadvertently dinging your credit history and credit score.

Thinking of taking out a personal loan? Apply online today with Rocket Loans to understand the rates and terms for which you may prequalify.