5 Things to know about using personal loans for big purchases.
Nobody loves the idea of being in debt. But there are times in life when you may need some financial support for a big purchase, an unexpected expense, or it just makes sense to invest in your future. And we all know with Hawaii’s high cost of living, we can use all the help we can get.
Beyond a home, car, or business loan, personal loans can help you make that major purchase. But those unfamiliar with personal loans may have questions about whether this might be the right choice. Here are five things to know that can help you make the right loan decision.
- Key benefits of a personal loan
There are many benefits to taking out a personal loan to pay for a big purchase.
- Lower interest rate – Depending on your financial health, you could get a lower interest rate than your credit card.
- One monthly payment – A single payment is convenient, predictable, and could be much more manageable with a lower interest rate.
- Plan your pay-off date – With timely payments on a set loan term, you’ll know exactly when you’ll pay off your loan.
- Types of purchases where personal loans may fit
Sometimes there are significant life decisions or life surprises that could benefit from a personal loan.
- Home Improvement – Taking care of essential home repairs or remodeling your home can help increase your property value if you’re thinking about selling. Or if you need to buy major household appliances, it might be worth looking into a personal loan.
- Special Occasions – You only live once, and if you’re financially prudent, you can help finance that wedding, bucket list trip, or next-level baby luau.
- Vacation costs – Checking off your bucket list destinations can get pricey between airfare, hotel, meals, transportation, and all that omiyage you need to bring home. Instead of charging it all on your credit card, a vacation loan or personal loan could save you more in the long term.
- The role your credit plays
Generally, the stronger your credit history, the lower your qualifying interest rate for your personal loan. A primary factor is your credit score, a three-digit number based on your credit report that looks at your bill-paying history, current unpaid debt, and more. Scores range from 300 to 850, and generally a score over 700 is good.
Other factors that lenders look at include the strength of your credit history, your employment status and income, your loan size, and the length of your term. Note that different lenders prioritize different factors in determining your loan terms, but maintaining good credit is always helpful in getting the best interest rate.
- Other alternatives to a personal loan
Know that there are many alternatives to borrowing money, depending on your financial situation. Tapping into the money from your savings is an obvious solution if you’ve saved for a rainy day. Using a credit card may be an option if your APR interest rate is low, if you want to earn points or rewards, and if you can plan on paying off your big purchase quickly. And personal lines of credit or home equity lines of credit (HELOC) allow you to draw from a revolving line of credit. Learn more about other types of lending.
- Do your homework and see if a personal loan adds up
Finally, know that everybody’s financial situation is different, and solutions that work for some may not work for you. Talk to your financial advisor or a loan officer at your local CPB branch to get more information. Get to know your options and compare each of the pros and cons so you can make that big purchase with confidence.