Benefits of personal loans
By Rebecca Lake
Published on August 06, 2023
Read time: 5 min
Personal loans let you borrow money for almost any purpose.
Some of the most common reasons to get a personal loan are debt consolidation, large planned expenses, and emergencies.
Benefits of personal loans include fast funding and predictable payments.
Sometimes, ambitions feel like stars in the sky. Alluring, but very far away. One of life's exciting challenges is figuring out a way to bring them closer.
What do your financial ambitions look like? Consolidating your more expensive debt? Tackling a home improvement project? Covering a large expense that you want to pay for over time?
A personal loan is one way to bring financial dreams within reach.
Personal loans—the what and the how
A personal loan is a loan you can use for personal reasons. You get a lump sum of money. Then, you pay that money back to the lender with interest.
A personal loan can be secured or unsecured. The difference is that secured personal loans require collateral—property you use to guarantee that you'll repay the loan. For instance, when you get a car loan, your car is the guarantee. The lender has the right to sell it if you don't pay the loan back as agreed.
Most personal loans are unsecured, meaning your eligibility is based on your credit standing and financial information. No guarantee is needed, other than your promise to pay.
Lenders decide on the requirements to qualify, and they set the interest rates on their personal loans. Most lenders charge a fee for making the loan, sometimes called the origination fee.
Top 10 benefits of personal loans
Now that you know how they work, let's dig into the main benefits of personal loans.
One of the great things about personal loans is that you can use them for almost anything. Some of the most common kinds of personal loans include:
Medical loan or pay for veterinary care
Buy a car with a personal loan or pay for car repairs
Furniture or other large purchases
Personal loans let you decide how to spend the money, with very few exceptions. For example, because student loans are in a special category, lenders typically won't let you use a personal loan to pay college tuition or to consolidate other student loans.
2. High borrowing limits
Personal loans are big enough to cover many major expenses. For example, you can borrow up to $50,000 with a personal loan from Achieve. When you compare that to a credit card, which might have a limit of $5,000 or $10,000, personal loans can be a better fit for your need.
3. Fixed interest rates
Interest rates can be fixed or variable. A variable interest rate can fluctuate as economic conditions change. The vast majority of credit cards have variable interest rates.
Fixed interest rates are set when you get the loan. Then, no matter what happens in the economy, the rate stays the same for the life of the loan.
Fixed rates are good since they make your monthly payments more predictable. You can also calculate how much interest you'll pay over the life of the loan. Variable interest rates are less predictable, and it's more difficult to calculate the total cost since there's no way to know what will happen to rates in the future.
4. Flexible repayment terms
Lenders offer a range of repayment terms for personal loans. For example, you might have anywhere from 24 to 60 months to pay back what you borrow.
Choosing a longer loan term can make your monthly payments lower. But the longer you take to repay a loan, the more interest you'll pay overall. A shorter term might feel more expensive, but it isn't. You'll make a higher payment, but paying the loan off sooner can help you save more money on interest.
With personal loans, the repayment term is your choice, within the parameters set by the lender. You decide what repayment terms work best, based on your budget and the loan details.
5. Personal loans tend to cost less than credit cards
Using a credit card might be your first response if you need to cover an expense in a pinch. But that can get expensive if your card has a steep APR, or annual percentage rate. APR is the yearly cost to borrow, including fees and interest. Personal loan APRs tend to be lower than credit card rates, especially if you've got good to excellent credit.
The average credit card interest rate is just under 21%. For personal loans, the average interest rate is below 11.5%.
Personal loan lenders might also offer rate discounts, which is not something credit card issuers do. You can put yourself in the best position for the lowest possible rate with these strategies:
Take a shorter repayment period
Maintain a healthy credit profile (pay your bills on time and avoid maxing out credit cards)
Use all or most of the loan funds to pay off other debts
Show proof of retirement savings
Apply with a co-applicant who has sufficient income
At Achieve, personal loan interest rates range from 7.99% to 35.99%.
6. Collateral may not be required
Secured loans, as we mentioned, are guaranteed by something valuable. If you get a home equity loan, for example, your home is the collateral.
An unsecured personal loan could be a good fit if you don't have collateral to offer, or don't want to offer your assets as a guarantee.
7. Build credit
Personal loans can help you build a positive credit history. The key is making payments on time every month, because payment history influences your credit profile more than any other factor.
Why does good credit matter? For one thing, good credit makes qualifying for loans, credit cards, and other credit products easier. If you decide to buy a home, for example, lenders put your credit scores in the spotlight.
Strong credit can also help you get the best loan interest rates, and that can help you save money.
8. Streamline debt repayment
A personal loan could make it easier if you're paying down multiple debts.
You can get a personal loan, then use what you borrow to pay off your other debts. You then have only one payment each month.
This is a strategy to consider if you can get a lower rate on the personal loan compared to what you're paying on your other debts. A lower APR could help you get rid of the debt faster, or could give you more breathing room in your budget.
9. Easy application process
Thanks to online applications, applying for a personal loan has never been easier.
You can fill out an application, get a rate quote, and get approved as quickly as the same day with some lenders. You don't have to fill out forms in person or wait days or weeks for a decision.
For comparison, a home equity loan typically takes at least ten days.
10. Fast funding
Lastly, getting a personal loan can quickly put money in your bank account. Achieve, for example, can fund personal loans in as little as 24 to 72 hours after approval.
That's a great benefit if you don't want to wait for a traditional lender to approve and fund your loan. And if you have an emergency situation, you can get the money when you need it.
Ready to see what kind of loan terms you might qualify for? Get a personal loan rate quote from Achieve.