Not all debt is bad. Think credit cards, where consumers use them for everyday purchases, or getting a mortgage to purchase your first home. As long as you’re responsible — you’re intentionally using loan proceeds and have a plan to pay it back — carrying debt might help you reach your financial goals. Personal loans are another form of debt that can be beneficial if used carefully. Whether you’re looking for secured or unsecured loans, there are plenty of advantages to personal loans.
What is a personal loan?
Personal loans are a lump-sum of money a bank, credit union, or online lender lends to a borrower, who will repay the loan in fixed installments for a predetermined amount of time. These payments include interest and any applicable fees. Borrowers can choose from either secured or unsecured loans. The former requires the borrower to put up collateral to guarantee the loan, whereas the latter doesn’t. Personal loans are also known for their flexibility in that borrowers can use the funds for almost any purpose.
10 Benefits of a personal loan
If you’re wondering what is a benefit of obtaining a personal loan, the answer is that there are many. Some personal loan pros include its flexibility, higher borrowing limit, and predictable repayment schedule.
1. Higher borrowing limit than other debt
A popular alternative to personal loans are credit cards, but you may not be able to borrow a large sum. You may be better off with a personal loan if you’re looking to borrow at least $10,000.
2. Lower interest rates than credit cards
Interest rates for personal loans are usually lower compared to what you’d find for credit cards. For those with good credit scores, personal loan rates start at around 5%. Even those with fair credit scores may not be charged rates in the double digits. Compare personal loan rates to credit cards, which often charge much higher rates. If you carry a balance on your cards, the interest adds up.
3. Collateral is not typically required
Borrowers who take out unsecured personal loans don’t need to put up collateral to borrow money. While defaulting on your loan can have adverse consequences, you won’t lose any assets or property like you would with a secured loan.
4. Easy to track and manage
Taking out a single personal loan is simpler than cobbling together a larger loan by using multiple credit cards. Multiple loans tend to come with different payment due dates, lender policies, and interest rates. It’s far easier to take out a lump sum and make one payment using one lender.
5. Predictable repayment schedule
Since personal loans are installment loans, they come with fixed repayment terms. That means you’ll know for how long you’ll need to make payments. For fixed-rate personal loans, your rate will remain the same and you’ll know exactly how much you’ll pay in interest throughout the lifetime of your loan.
6. Repayment term longer compared to other loans
Personal loans offer a wide range of repayment terms, from a few months to a few years. You may be able to find unsecured personal loans offering longer terms, possibly up to seven years. Compare this to payday loans that have much shorter terms and exponentially higher interest rates.
7. Building credit history
Any time you take out a loan, you’re building your credit history. Personal loan lenders report your payment activity to major credit bureaus — either Experian, Equifax, TransUnion, or all three. Making on-time payments consistently helps to build a strong credit history and boosts your credit score. However, missing a payment will also be reported, potentially impacting your score negatively.
8. Ease in applying
Filling out an application form for a personal loan is relatively simple compared to other types of loans like a mortgage, home equity loan, or a home equity line of credit. Plus, there are plenty of online personal loan lenders that use an application process that’s completely online.
9. Fixed interest rates
Unless you decide to go with a variable rate loan, most personal loans have fixed interest rates. This is beneficial because you know exactly how much you’ll be changed in interest for the lifetime of your loan — no surprises there.
10. Personal loans can be used for many purposes
While all of the above points are good reasons for personal loans, perhaps the main one is that you can use a personal loan for most purposes. Some common uses include major purchases and debt consolidation.
- Refinancing existing debt. Many borrowers take out debt consolidation loans to simplify their loan payments, ideally at a lower interest rate. The single loan is taken out to pay off existing debts and the borrower is left with paying back a single loan. Ideally, this personal loan will also have a lower monthly payment compared to the combined total of the debts you want to consolidate.
- Making major one-off purchases. A personal loan can be an option to pay for large purchases such as a home renovation project. It tends to be a better option compared to other alternatives, especially if you have a high credit score (which can qualify you for lower rates) or you need to borrow more than your credit card limit.
- Vehicle. Auto loans are a common type of secured personal loan, where your car is the collateral, and might be a better bet if you’re purchasing a car from a dealership — you could get a lower rate.
However, if you’re purchasing a car directly from the previous owner, an unsecured personal loan may be a good option, since lenders may not fund a private-party transaction directly. You can take your loan proceeds to pay for the car in cash and make monthly payments to your lender.
- Home improvements. Funding large home improvement projects using a personal loan can be a good idea, especially if completing renovations helps you to increase the value of your home. Plus, it could be an alternative if you don’t have enough equity in your home to take out a home equity loan or home equity line of credit.
- Vacation. Using a personal loan to pay for a vacation might be helpful if you want to make sure you don’t mindlessly spend (like you might using credit cards). Getting a lump sum payment can help you prepay for certain expenses such as hotels, attractions, meals, and souvenirs.
- To buy land. Many lenders offer personal loans for land purchases. There may be requirements such as restrictions on the planned use of the land that you finance. Some lenders even offer land loans to help you with land improvements, preparation, and home construction.
- Wedding. Weddings can cost a pretty penny, and this major life event can take months of preparation. For instance, you may need to make multiple deposits months or a year in advance to secure your catering and venue. If you’re considering taking out a personal loan, try to come up with a realistic budget and get a loan amount for that size.
- Major emergency expense. Life happens. Even with the best of intentions (and a rock-solid budget), you could face a huge financial obstacle, like an unexpected medical bill. In this case, you might consider taking out a personal loan and stretching out your payments so you can afford it much easier than you would if you had to pay a lump sum.
- Financing some types of training. Though you can’t usually use a personal loan to fund a college education (there are student loans for that), you can use personal loan funds for career development purposes. For instance, you may be able to borrow money to get a commercial driving license (CDL), certificate programs, and professional development courses.
Personal loan alternatives
If you can’t qualify for a personal loan or don’t need to borrow a large sum of money, there are some alternatives to consider.
Credit cards
| Pros | Cons |
| Offers a revolving line of credit |
If not careful, could get into more debt than expected |
| Fund purchases multiple times as long as it’s within credit limit |
Interest rates tend to be higher compared to personal loans |
| No interest if entire balance paid off each month |
For those who aren’t sure how much they’ll end up borrowing or want more flexibility, a credit card may be a good choice. It offers flexibility in that you can use your credit card at any time, instead of having to fill out an application form each time you want to borrow money. Plus, you don’t have to pay any interest if you’re able to pay off the statement balance each month. However, you could end up carrying debt if you’re not careful about how much you spend. Interest rates are generally high, so make sure you do some calculations to see which is the less expensive choice, a personal loan or a credit card.
Overdraft
| Pros | Cons |
| Quick funding option | Banks may charge penalties for sustained overdrafts |
| Can use for smaller amounts | Not ideal if you want a loan for more than a few days |
| Overdraft fees may be less than personal loan interest charges |
Banks may close your account if you overdraft regularly |
Most banks have an overdraft option that allows account holders to withdraw more than the amount currently in their bank account. This might be a feasible option if you need extra cash for a day or two until your next paycheck comes. Make sure to read the fine print about what you may be charged. It could be possible to pay multiple overdraft charges, especially if you overdraw your account more than once a day.
Borrowing from friends and family
| Pros | Cons |
| Potentially no fees or interest |
Your relationship could suffer if you can’t pay back the loan |
| More flexibility on repayment schedule |
Asking to borrow money from friends or family may be a good idea, especially if you have limited or bad credit. Depending on the loan arrangement with the other person, you might not have to pay them back any interest or lower rates than you could get through a bank — if so, it could cost you much less than a loan you’d get elsewhere. Borrowing from family and friends can potentially be harmful to those relationships if you make payments late or can’t pay back the loan at all. Clearly outlining the expectations of the loan in a formal written document is a smart idea.
Apply for a personal loan now
Whatever your reasons for taking out a personal loan, shopping around to find the best rates and terms is a good idea. You can certainly go to each lender and get prequalified, but doing so will take hours and leave you feeling overwhelmed.
The takeaway
Taking out a personal loan shouldn’t be a decision to be taken lightly. Before you fill out an application, check to see whether there are any feasible alternatives, such as waiting to save up for that large purchase. For those who want to take out a loan, shopping around and reading the fine print before signing the dotted line ensures you know exactly what you’re getting into.
This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
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Personal Loan:
SoFi Lending Corp. (“SoFi”) operates this Personal Loan product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
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SoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lender’s receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Student loan refinance loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options that the federal loan program offers, or that may become available, including Income Based Repayment or Income Contingent Repayment or Pay as you Earn (PAYE).
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Automobile refinancing loan information presented on this Lantern website is from Caribou. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including: you must meet the lender’s credit standards, the loan amount must be at least $10,000, and the vehicle is no more than 10 years old with odometer reading of no more than 125,000 miles. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness. Additional terms and conditions may apply and all terms may vary by your state of residence.
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Terms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.
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Understanding Parent PLUS loan repayment options
If you took out loans to help fund your child’s education, such as Parent PLUS Loans from the federal government, you’re eventually going to have to start paying them back.
Parent PLUS loans can’t be transferred to your child — even once they graduate and get a steady job — so you’re the one who’s on the hook for paying them off in full. That prospect can be daunting since this may be your largest chunk of debt outside of a mortgage.
But you have lots of options for temporarily putting off payments on Parent PLUS Loans or making them affordable. The choices can get overwhelming, so here’s a guide to help you figure out which plan is right for you.
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Unlike some other federal loans, Parent PLUS Loans do not have a grace period — a six-month break after the student graduates or drops below half-time enrollment, before payments are due. Instead, their repayment period typically begins once the loan is fully disbursed.
The idea behind the delay with other loans is that it gives your child a chance to get settled financially. The federal government assumes you, as a parent, don’t need the same accommodation.
If you’re not ready to start paying, you have a couple of options for pausing repayment on your Parent PLUS Loan.
One option is to apply for a deferment, which will allow you to temporarily stop monthly payments. You can ask for a deferment while your child is still in school at least half-time, or for six months after they graduate or drop to a lower level of enrollment. Keep in mind that interest will still be piling up, even if you’re not making payments. If you don’t pay the interest during this period, it will be capitalized, or added to the loan principal, when the deferment is over, which can increase how much you owe over the life of the loan.
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If the circumstances above don’t apply, you can still temporarily stop or reduce what you owe by requesting a forbearance. You may be eligible for forbearance if you’re unable to pay because of financial hardship, medical bills, or a change in your employment situation. You may also qualify for a forbearance if you’re in a medical or dental internship or residency, if you’re in certain teaching jobs, or if you pay 20% or more of your gross income toward the loan. Interest will still capitalize during this period, but if you’re going through a temporary financial difficulty, it may be worth approaching your loan servicer for a forbearance rather than risking missed payments.
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You can’t put off payments forever. Depending on the plan you choose, you will have between 10 and 25 years to pay off the loan in full. But Parent PLUS loan repayment doesn’t have to be daunting. Here are a few of the Parent PLUS Loan repayment options you have.
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One of the most straightforward options is the Standard Repayment Plan. In this scenario, you will pay the same fixed amount each month and pay the loan in full within a decade. The benefit is that you always know how much you owe and you’ll accrue less interest than with most other plans, since you’ll be repaying the loan in a faster time frame. The difficulty is that this results in monthly payments that are too high for some people. It’s a good option if you can afford the payments and you don’t expect your situation to change in the next ten years.
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Another option is the Graduated Repayment Plan. You will also pay off your loan within a decade, but the payments will start out smaller and then increase, usually every two years. You’ll pay more overall than under the previous plan because you’ll accrue more interest, but less than if you were to sign on for a longer repayment term. This plan is a good option if you expect to earn more in the relatively near future.
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Extended Repayment Plan: A third choice is the Extended Repayment Plan, which spreads payments out over 25 years. You can either pay the same amount every month, or have payments start out lower and ramp up over time. You’ll end up paying more over the life of the loan because you’ll be racking up interest over a longer time period. But it’s a good way to make monthly payments more affordable while knowing you are on track to pay off the loan in full.
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Parent PLUS borrowers don’t have as many opportunities as students do for getting a portion of the loan forgiven. There are no income-driven repayment plans for Parent PLUS loans, even though the government offers four such plans for students.
That being said, you do have a couple of options:
- Income-Contingent Repayment Plan: You do have one option for tying payments to your income, but you have to jump through one hoop first — you would need to consolidate your Direct PLUS loan (or loans) into a Direct Consolidation Loan through the federal government. This combines your existing loans into one and may change your monthly payment, interest rate, or the amount of time in which you have to repay the loan. Just note that Direct PLUS Loans received by parents to help pay for a dependent student’s education cannot be consolidated together with federal student loans that the student received. Once you consolidate, you may be eligible for the Income-Contingent Repayment Plan. Under that plan, your monthly payment would be no more than 20% of your discretionary income. If you make the monthly payment for 25 years, the remaining balance will be wiped away, though you may owe taxes on it. This can be a good option for making your payments affordable if you expect your income to remain relatively low for the foreseeable future.
- Public Service Loan Forgiveness:Another way you might be able to get your loans forgiven is by signing up for Public Service Loan Forgiveness. You might qualify if you work in a public service job, including for a government organization, nonprofit, police department, library, or early childhood education center. Note that you are the one who has to work in this field, and not the student.
Make sure you submit an Employment Certification Form every year or when you switch jobs. To qualify, you also need to take out a Direct Consolidation Loan and then start repayment under the Income-Contingent Repayment Plan. If you work in public service, this can be a very effective way to get the loan off your back within a decade.
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If you’re looking for another way to tackle your Parent PLUS loan, consider refinancing your parent plus loans with a private lender. This involves taking out a new loan and using it to repay your old one.
The benefit of refinancing is that you may qualify for a lower interest rate or a lower monthly payment, especially if you have a solid credit and employment history. However, when you refinance federal loans with a private lender, you will lose eligibility for any federal repayment plans or loan forgiveness programs.
You can get a preliminary quote online in just a few minutes to see whether refinancing makes sense for you.
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By taking out a Parent PLUS loan, you are generously supporting your child to achieve their dreams of a higher education and a solid career — but that doesn’t mean that loan payments need to become a burden for you. If you learn about your options for reducing or managing payments, you’ll be on track to paying off your loan with peace of mind.
One such option you might consider is refinancing your Parent PLUS Loan, which could help you secure a lower interest rate or monthly payment.
Learn more:
This article originally appeared on SoFi.comand was syndicated by MediaFeed.org.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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