A Guide to Borrowing: When to Get a Loan and Why

Have you been dreaming about renovating your home? Are you still longing to visit Greenland to see the magnificent Northern Lights? Have you put everything on hold due to a lack of funds?  Are you worried that taking a loan to make your dreams come true might affect your credit profile? Did an emergency expense come up, and you’re concerned about how to cover your bills this month?

If you’ve answered ‘yes’ to any of these questions, you’ve landed at the right place! 

In this blog, we will shed light on when to get a loan and how borrowing can affect both your goals and your credit profile.

Your Fast Guide To Help You Decide When To Get A Loan

Sometimes personal loans don’t make sense for your expenses, and sometimes they can help you when you need to make ends meet. Here we go over what a personal loan is, 

What is a Loan?

A loan taken out for personal reasons is called a personal loan. Unlike car loans and mortgages, personal loans aren’t set for any specific purpose, but you can use them to satisfy all your personal needs. 

A personal loan can also be called an installment loan. A lender will give you a lump sum of money and require you to repay it along with interest in fixed monthly (sometimes weekly) installments until the loan period expires and you have paid the principal amount in full.

To qualify for most personal loans, you must have a minimum credit score between 610 and 640. A lender will judge your ability to repay the loan based on your credit score. 

However, some installment lenders won’t do a hard credit check, and they look at your ability to repay, rather than just your credit score.

When to Get a Loan for Personal Needs

You must only take a personal loan if it is your least expensive borrowing option. If you don’t have any collateral and all other borrowing options require security, you must consider a personal loan. If you don’t qualify for a zero or low-interest credit card or have enough limits on your current credit cards, only then must you consider getting a personal loan. 

Here are four circumstances when you might consider getting a loan:

1. Home improvement: If you plan on renovating your home, buying new appliances, installing a new furnace, or making a big purchase for your house, you should consider a personal loan since it might be a cheaper option than using your credit card.
2. Credit card debt consolidation: If you owe a substantial balance to a credit card company with high-interest rates, taking a personal loan to write off that balance can save you money. Personal loans can have lower interest rates than credit card loans. Consolidating credit card debt can allow you to pay off the balance faster and pay less interest in total. 
3. Major life event: A significant life event, such as a wedding, an engagement, a bar mitzvah, or an anniversary party, can be less expensive to host with a personal loan than through a credit card. If you are thinking of taking a trip of a lifetime, taking a personal loan is not a bad idea at all! 
4. Credit score improvement: Taking a personal loan and repaying it on time can actually help you improve your credit score. If your credit score has dropped and you need to increase it a bit, consider taking personal loans and pay them on time. If you have more than one loan and consistently make on-time payments on them, it shows your ability to handle debt responsibly and reflect your credit report well. 

Where to Get a Loan in 2021

Time is money, and sometimes that means there is no time to waste. If you need a loan to help you quickly pay off an emergency situation or just help pad your budget as you figure out your finances, compare your options first. Banks, credit unions and online lenders all work differently, so look at the rate, the fees and how long funding takes. Only borrow what you know you can pay back, so you don’t end up in the debt cycle.

If a personal loan looks like the right fit, see your loan options and read the terms of any offer before you accept.