Cover various personal expenses, including debt consolidation through online personal loans | Prosper.com. Lenders have wide discretion in allocating loan funds. For example, if you need to remodel your kitchen, it might be better off using the money for a different purpose. On the other hand, if you have debt from student loans or credit cards, you probably should not apply for a personal loan to consolidate those bills. Personal loans typically have medium repayment terms of two to eight years and offer low-interest rates for borrowers with excellent credit. However, this might not be an option for people with poor credit.
Unsecured Personal Loans Don’t Require Collateral
An unsecured personal loan may be the best option when you need a loan but don’t want to use your house or other assets as collateral. They offer a more flexible lending process and can sometimes offer better terms. Moreover, you won’t have to worry about losing your collateral if your credit score isn’t good. However, unsecured loans aren’t ideal for people with bad credit or no credit history.
The interest rate on unsecured personal loans depends on the borrower’s credit score, but these can vary. Generally, most lenders prefer borrowers with good credit, defined as a VantageScore credit score of 661 or higher. Borrowers with lower scores or those with past collections will have a lower chance of being approved. However, borrowers with high credit scores will have better chances of being approved.
They’re Cheaper Than Brick-And-Mortar Banks
One obvious benefit of online banks is lower rates. The average personal loan rate at a traditional bank is 9.23 percent, while an online lender charges as low as 7.25 percent. And although online banks don’t offer as many products as traditional banks, they can provide basic banking services like checking account balances and fees. Another advantage of brick-and-mortar banks is convenience. Many consumers are more comfortable with online banking than with traditional banks. In addition, many brick-and-mortar banks have convenient locations and face-to-face customer service. Those benefits are important to many people. For instance, some banks can provide investment advice, insurance, and brokerage accounts that aren’t available online. Similarly, online banks don’t offer routine services, such as CDs and savings accounts.
They Help Build Credit
It is important to establish a credit history to improve your score. Using multiple lines of credit close to their limit will raise your debt-to-credit ratio, which knocks points off your credit score. Luckily, personal loans can be a great way to build a positive credit history. When used responsibly, they can improve your score by establishing a more extended payment history and a lower total debt-to-credit ratio.
Personal loans are a great way to improve your credit history, but they come with some risks. Traditional loans are riskier than credit-builder loans for establishing a good credit history. It’s important to remember that making timely payments is still required to prevent being turned down. While personal loans help build credit, they’re not a good option for everyone. Before applying for a loan, be sure to assess your repayment ability and whether it’s worth the extra risk.
They Help Consolidate Debt
When you apply for a new loan, you may experience a short-term drop in your credit score. A hard inquiry will be placed on your credit record, and an origination fee may be imposed. However, if you pay off your credit cards, you can avoid these costs. Your credit score will improve if you have a lower credit utilization ratio and fewer open accounts. This is especially true if you make all your payments on time, which will improve your credit score.
A debt consolidation loan is a personal loan that merges many debts into one. Typically, this involves a credit card balance transfer, home equity, or other installment loans. The benefit of a debt consolidation loan is the simplicity of making one payment and simplifying your monthly budget.