A personal loan is a preferred financing option in times of urgent fund requirement. As personal loans are unsecured loans, borrowers aren’t required to pledge any security while availing it. A personal loan can be used for variety of purposes such as funding child’s education, managing medical expenses, wedding expenses, etc. Due to its multipurpose use, a personal loan has gained massive popularity in recent times. As a result of the development in the Banking and Finance sector, availing a personal loan has become a hassle-free process. However, before approving your personal loan application, most financial institutions will assess your creditworthiness. Your creditworthiness is dependent upon your credit score. The higher your credit score, the higher are your chances of personal loan approval. Moreover, good credit history can help you avail a comparatively higher loan amount at a reduced rate of interest.
On the other hand, availing a personal loan can also improve your credit score significantly. Below are some of the ways through which you can use a personal loan to improve your credit score.
Replace your credit card debt with a personal loan
- Credit cards have huge interest rates associated with them. If you have multiple credit cards, making timely repayment can be a difficult task. Inability to repay the credit card loan on time can lead to debt trap. This can impact your credit score negatively.
- The interest rates on personal loans are comparatively lower. Therefore, replacing your credit card debt with a personal loan can be a wise choice. You can consolidate all your credit card debts under a personal loan. By doing so, you will only need to pay EMI on a single loan, rather than paying monthly installments of your multiple credit cards.
- Personal loans have a fixed repayment tenure, whereas credit cards have a rotation system. When you pay your EMIs on time for a certain period, it can help improve your credit score.
- By availing a personal loan, you willbe required to pay the interest rate for one loan, rather than paying multiple interest rate for multiple credits.
Use a personal loan to pay a high-interest loan
In order to reduce the repayment burden on your high-interest loan, you can choose a personal loan with competitive interest rates. This will help you reduce the overall cost of borrowing in the long run.
Reduce your credit utilization ratio
- A Credit Utilization Ratio is the amount of credit you are using currently divided by the total amount of credit available with you. By minimizing your credit utilization ratio, you can improve your credit score significantly.
- Before you decide to apply for a Personal Loan, make sure you have an idea of your monthly EMIs. You can use a personal loan EMI calculator to get an estimated amount of the EMIs.
Now that you are well aware you of various personal loan benefits, make sure to avail it to fulfill your financial requirements and improve your credit score. It is also advisable to compare various loan deals offered by different financial institutions. Moreover, you should also review the financial institution carefully before making the final decision. This will allow you to settle for a loan that best suits your needs.With prominent lenders, you can avail a personal loan at the most competitive interest rate. Flexible repayment options and long tenure are some of the other advantages of availing a personal loan with a reputed lender. Moreover, you can also customize your personal loan according your requirements. Lastly, read all the terms and conditions of your personal loan agreement carefully before signing it. This will help you avoid any inconvenience in the later stage.