In need of some quick cash? You might be tempted to ask your friends or family for help, but consider applying for a personal loan before you do. While it can be tempting to borrow from friends or family, that doesn’t make it the right financial decision. Read on.
Why personal loans?
People who wish to borrow money to pay for personal costs can apply for personal loans from lenders like banks and NBFCs. These costs could include a wide range of things, such as a new car, house improvements, a wedding, higher education, a trip, etc. Lenders provide personal loans to people so they can raise money right away without having to go through a drawn-out application process. Lenders offer personal loans at an interest rate they determine depending on the loan amount and the loan tenure selected by the borrower, similar to other loan types. Once you’ve applied for a personal loan, you have a legal obligation to repay the lender the loan’s principal and interest during the loan’s term.
Here are some advantages if you apply for a personal loan instead of borrowing money from friends or family-
- A personal loan has a set repayment schedule
A personal loan often has a set repayment schedule, meaning you know exactly when and how much you’ll have to repay each month. Plus, unlike borrowing from friends or family, if your circumstances change and you can’t make payments for whatever reason (e.g., illness), your lender will work with you to find an alternative repayment plan that works for both of you. If you apply for a personal loan, you get more flexibility with payment options, like biweekly payments that allow you to pay less each month.
- A personal loan can help improve your credit score
A personal loan can help improve your credit score by allowing you to demonstrate that you can responsibly manage debt. Plus, if you have good credit, you can get a lower interest rate than borrowing from friends or family. When you apply for a personal loan, the terms are often more straightforward to understand than when you borrow from friends or family; for example, the amount of interest you’ll pay throughout the loan will be clear. Finally, many lenders offer flexible repayment options on personal loans, whereas they may not be as generous about repayment plans when borrowing from friends or family.
- A personal loan can be used for any purpose
You can use a personal loan for any purpose, including major expenses like starting a new business, buying a car, paying college tuition, or even consolidating high-interest debt. Unlike borrowing from friends and family, the lender won’t care if you want to use the money for something other than your emergency fund—you’ll still get the same low rates and flexible repayment terms. With most lenders, you don’t need perfect credit to apply for a personal loan—as long as you have some income and an active checking account, there are plenty of options available.
- You can shop around for the best personal loan rates
For many people, borrowing money from friends or family to get them out of financial trouble seems like the easiest option. However, there are several drawbacks to this type of borrowing. For example, the interest rates can be much higher than what would be offered when you apply for a personal loan. You may be in even more debt as your loved ones expect you to repay them quickly. Borrowers also have access to competitive interest rates with some companies, which means that their monthly payments are smaller, making it easier for them to manage their finances when paying back the debt.
- You don’t have to worry about hurting relationships
While it’s tempting to borrow money from friends and family, the reality is that if you can’t repay what you owe, your relationship could be damaged. When you apply for a personal loan, the lender will look out for your interests and offer different repayment options and rates based on your situation. Plus, if you decide to refinance your debt with another lender, later on, it won’t matter how good your terms were with the original lender since they don’t share this information with other companies. Additionally, unlike borrowing from friends or family, most lenders will have an in-house attorney, so you know there’ll be someone to answer all your legal questions about the process if needed.
- You can get a personal loan without collateral
A personal loan can be the perfect way to borrow money if you need more than what you have in savings but don’t want to borrow from friends and family who may ask for collateral. If you have good credit, it’s even possible to apply for a personal loan without having any collateral. That makes this type of loan ideal for people just starting out because they can establish their credit history before asking friends or family members to lend them money. With a personal loan, you must make your monthly payments on time, and you’ll build up your credit over time. You might even find that a bank will approve you for an auto loan once your score has improved significantly.
figuring out Borrowing money from friends or family can be very difficult for both parties. The borrower usually feels guilty, and the lender feels taken advantage of. So if you need help figuring out what to do when you need money, try applying for a personal loan instead. A personal loan lets you pay back your debt over a longer period so that you don’t have to worry about making payments on your friend’s schedule. If you apply for a personal loan, you’ll also get great interest rates and low fees, saving you money in the long run, along with access to more flexible repayment plans with better terms.
For more information and customized assistance, head over to Piramal Finance.