Personal loan has become very popular funding sources lately, especially because they can let you borrow a large amount of money without turning in collateral. Since you do not have a risk of losing anything, there is nothing to worry about. Well, each loan has its own upsides and downsides, and because these loans are not subject to collateral, it does not mean you can beat the rap.
Though they are known as small loans and are sometimes used to fund emergencies, they are not like other short-term loans like payday and cash loans. The repayment term of these loans, contrary to that of payday loans which are not more than a 14-day period, is at least six months that can stretch up to 18 months, depending on the size of the loan.
When the repayment length is small, you can easily get rid of the loan by paying it off once and for all, provided your monthly budget has some room left to pay it down after meeting all of your monthly expenses. Still, when it is longer, you must be cautious about your repaying capacity, as your financial position can be changed during the term. You may have difficulty meeting all of your expenses.
Unfortunately, this would not just affect your credit rating but ruin your finances altogether as interest will keep accruing each time you default, and then, in the end, you will end up with debt collection agencies chasing you, probably taking you to court.
The best time when you should request a personal loan
Personal loans in Ireland can be used for both emergencies and planned expenses. However, it is vital that you carefully examine your financial situation, credit report, and above all, the purpose you are about to take out these loans. Here are situations when applying for a personal loan can be benign.
You want to consolidate high-interest debt
Consolidation is one of the most popular reasons why people take out personal loans in Ireland. When you take on short-term loans like payday loans and cash loans, you end up rolling over a loan and eventually find it harder to pay them off. Then you take out another loan to pay them off, but that all mess leaves you tied up with multiple debts.
This situation may threaten your finances, so it is suggested that you deal with it as soon as possible, and then comes a personal loan. You can use these loans to consolidate high-interest debt.
You can pay them off once and for all, and then you will have only a personal loan to be paid down over some time – six to 12 months, for instance – depending on the amount you borrow.
Need it for a necessary purchase
Essential purchases are another reason why people take out personal loans. There could be many essential items you would want in your life, but you may not have enough money to throw at them straight away. Of course, you cannot put it off.
For instance, you need money for a big day. You cannot afford to put it off. You will rather try to borrow money to fund the shortfall in your savings. Similarly, you may need money to buy a gadget. For instance, if you love coffee and drink it every day at a cafe, it is better to buy a coffee machine and make it at home. This will be way more affordable.
You may think that it is not an essential thing. You can make a budget for it and buy it later. Well, this is a good idea if you do it on your own because you can save money in interest, but if you are being unable to do it, you should take out a personal loan.
Medical expenses
Life can throw a curveball at any time. Despite having medical insurance, you may need a lot of money to pay for your treatment because an insurance company covers not all expenses.
If your savings are not enough to cover the cost of your treatment, you will need to take out a personal loan. The best part is that you do not need to pay off these loans at once. You will pay down the debt in instalments over time so that you will feel less burden on your pocket.
Boost your credit rating
Another reason for taking out a personal loan is that you want to boost your credit rating. You can borrow money at affordable interest rates if you have a good credit rating. Though borrowing is an option for those with poor credit scores, interest rates will be quite higher.
Therefore, it is suggested that you have at least a fair credit score. You should try to boost your credit score. Short-term loans, like small cash loans, cannot help build your credit rating because you are to pay them off in a lump sum within a very short period.
Since personal loans are paid back within an extended period of time, and you are to pay down the debt in that time, your credit score will go up as it proves that you have been consistent toward your financial obligations despite fluctuation in your financial condition.
To sum up
Personal loans can be ideal only when you take them out when it is extremely necessary. You are not supposed to apply for these loans to fund your discretionary expenses or any kind of expenses that you can delay until you have a budget.
For instance, using these loans to pay for a car, college fees, and funding a luxury lifestyle is not one. If you do so, you will end up taking a toll on your financial condition. It will not just affect your credit score but shut the doors to apply for any loan down the line.
There are ideal situations when you should request a personal loan. If you use these loans for any situation other than those mentioned earlier, you will end up ruining your budget.