Many times, paying for a large, important life event can feel daunting, particularly if one has a limited amount of cash at one’s disposal. Thankfully, instead of exhausting all of one’s credit cards at interest rates in the high teens or even more than twenty percent. According to Lantern by SoFi, “a personal loan is a fixed-amount loan that’s distributed as a lump sum.” Given that the money is provided by a lender upfront, personal loans can be a versatile way to finance many types of spending that require an investment upfront. Furthermore, personal loans are typically fixed at a lower rate than credit cards, making it more affordable to pay for a larger expense over up to five years.
How Can Personal Loans Help You?
Personal loans can be useful in many important circumstances, including but not limited to consolidating high-interest debt, financing a single large event like a wedding, improving credit scores, or even investing in a business or venture. The upside about personal loans is that the terms are fixed up-front, so there is a clear loan payment schedule, fixed payment amounts, and a clear delineation of fees like late payment or prepayment fees.
Additionally, taking out a personal loan can oftentimes be more cost-effective than using a credit card to pay for the same expense. Bankrate.com notes that the average credit card interest rate was 16.31% in May 2022, compared to the average personal loan interest rate of 10.28% in the same period. The 6% difference in interest not only translates to a marked decrease in the total interest paid over the borrowing term but also results in lower monthly payments as well. This can result in a stronger ability to pay back the loan in full without missing any payments. According to the experts at Lantern by SoFi, “Your annual income and the amount you wish to borrow are important, too, among other personal financial factors that also vary from lender to lender.”
Besides the transparency of loan details, the money from the loan can be applied to anything one wishes to purchase. This can be particularly attractive to individuals with interest in pursuing entrepreneurial ventures. In the early stages of building a business, banks and other lenders may be hesitant to approve a loan because there is a lack of a successful business track record. Some entrepreneurs may also suffer from poor credit scores or lack assets for collateralized business loans, which could stifle their ability to raise the money necessary to grow their business from the outset.
A personal loan helps circumvent these issues by providing access to money at a lower cost than credit cards, requiring no collateral, and providing a reasonable payment timeline, typically around five years. Of course, the final interest rate granted will depend on the lender, but potential borrowers can secure the lowest rate in the market by shopping between different lenders.
Personal loans can be a great way to quickly access a lump sum of cash to be used for a large purchase or investment. The best way to find the best personal loan rate is to reach out to multiple lenders – services like Lantern by Sofi make it easy to compare personal loan rates.