It’s important to understand the pros and cons of personal loans when you’re looking for a lender and decide to apply for financing. While personal loans can be helpful in many situations, they can also come with high interest rates and significant impact on your credit score. Still, the benefits of these loans often outweigh the risks, especially if you qualify for a competitive rate or need quick access to funds.
Whatever your situation, here are some tips to help you make that borrowing decision.
What are the advantages of obtaining a personal loan or a micro loan?
Micro personal loans can be a great option if you want to consolidate high-interest debt or need money for a home improvement project or other expense you can afford to pay off. Not only are most personal loans unsecured – meaning the lender doesn’t require collateral – but many have competitive interest rates and no fees.
So it’s important to assess your needs and the pros and cons of a personal loan before you borrow
1. Help borrowers improve their credit
Taking out a personal loan requires regular monthly payments to pay off the balance. Lenders typically report your payment history to the three major credit bureaus – Equifax, Experian and TransUnion.
If you make regular on-time payments, it can help boost your credit score; payment history accounts for 35% of your FICO credit score. It also means you can damage your score if you make late payments or default, making it harder to access credit in the future.
Micro-loans are different from traditional loans in this respect, as micro-lenders generally do not report to the Canadian credit bureaus. This means that repaying the loan will not directly improve your credit, but defaults will not negatively affect it either.
That said, when the microloan is then used to pay off other debts and make payments that do have a positive impact on your credit, a microloan can also improve your credit.
2. Allow borrowers to spread out their payments.
Lenders pay out personal loans in a lump sum rather than in small installments. This means you can use the money to make a large purchase or pay off other debt. This allows borrowers to make larger purchases and pay for them over time, without having to save money up front.
A personal loan will be more geared towards an investment, or property.
Microloans are more suitable for smaller expenses such as travel or the purchase of furniture and appliances, where the rates offered are less favourable.
3. Facilitating debt consolidation
Debt consolidation loans allow borrowers to better manage their finances by paying off individual loans and credit card balances with one personal loan. This not only reduces the number of payments you have to make each month, but also allows you to get a lower overall interest rate if your credit score has improved since you took out your other loans.
Some lenders specialize in debt consolidation and will pay off your other debts directly instead of putting money into your account.
If your debts are small, a micro loan may be a good solution to pay them off at once and have only one repayment to consider.
4. No receipts
Personal loans are a popular financing option because they are so versatile, and you can use them to cover everything from auto repair costs to home improvements and event-related expenses, such as weddings.
Acceptable uses of the loan vary by lender, but most institutions allow borrowers to use the funds for personal, family or household purposes. Personal loans cannot be used to further any illegal activity. Some lenders also restrict the use of personal loan funds for purchasing real estate, paying for post-secondary education or starting a new business.
In contrast, microloans have no limits on how they can be used. Once the money is in your account, you can spend it as you see fit, with no accountability.
5. Offer competitive rates
Annual interest rates for personal loans generally range from 3% to 36%, with the most competitive rates generally the privilege of consumers with very high credit scores. While the upper range of rates can be high, many applicants can enjoy a lower APR than a standard credit card. However, these rates are still higher than secured loans like mortgages.
Microloans have the advantage of having rates that are generally lower than those offered by credit card lines of credit. It’s the administrative and other fees associated with late payments that can add up with a micro loan. But if you are organized and have a good budget, they can be very beneficial.
6. Offrir des limites d’emprunt souples
Borrowing limits vary by lender, but personal loans are generally available between $1,000 and $100,000. For this reason, personal loans can be tailored to meet the borrowing needs of most consumers. Just keep in mind that getting a $100,000 personal loan will likely be more difficult than qualifying for a smaller, less risky amount.
A micro loan offers smaller sums, and is therefore easier to obtain. Without a credit check, you can still get $250 to $5,000, which is often enough for emergency situations.
7. Allows for unsecured loans
Most personal loans do not require the borrower to provide collateral. This means that you don’t risk losing something of value, such as your home or car, if you don’t pay back the loan. However, keep in mind that unsecured loans generally have higher interest rates and may be more difficult to qualify for because they present more risk to lenders.
As mentioned above, microloans also have the advantage of being unsecured in addition to having a reasonable interest rate. Microloans are very beneficial when they are paid back quickly.
8. Receive money quickly
If you need funds quickly, carefully consider the entire loan application process. The actual time it takes to apply, be approved and receive loan funds may be longer depending on when you apply, the amount of the loan and how quickly your bank allows you to access the money after it has been disbursed.
Processing times for microfinance applications vary, but many lenders will announce same-day or next-day funding. For example, if you have unexpected car repair costs or an urgent trip, a personal loan may be an option.
At the end of the line
There is a wide variety of offers when it comes to personal loans! If you’re looking for an easy to get loan, with no credit check, no receipts required; consider an online micro loan! The approval criteria are easy to meet, as long as you have a stable job and not too much debt, your ratio should easily qualify! Online microloans will also allow you to receive the money quickly; it is not uncommon to receive your loan in less than 24 hours. Since you won’t need an endorser or reference, your application will also remain completely confidential!
