Personal loans are versatile and useful, with lower interest rates than some other forms of debt and high accessibility. They are helpful for supporting big purchases, consolidating and managing debt, and improving or building your credit score.

Debt Consolidation and Refinancing

Personal loans are an excellent way to consolidate or refinance debt. Debt that comes from multiple sources, or that has high interest, can be difficult to manage or pay back in good time. A personal loan can be used to pay off many other sources of debt, effectively wrapping all of your debt into a single payment with lower interest.

Qualifying for a personal loan does involve a credit check, so if debts have negatively affected your credit score, it may be more difficult to secure one. However, there are a few ways to work with this.

First, look at applying for a loan from multiple sources. You can look at loans from banks, but credit unions are also viable options. Peer-to-peer lending involves taking a loan from individuals rather than large institutions, so this may give you more options to work with. 

Second, see if looking at a secured loan helps your chances. A secured loan uses something material, like a vehicle, as collateral for your loan. If you are in a financially secure position but simply don't have the credit to qualify for a loan, a secured loan may work for you. As a bonus, a secured loan may have an even lower interest rate. Because of the potential risk of adding collateral, speak to a financial advisor if you aren't sure this would be right for you.

Financing a Big Purchase

In most cases, going into debt to make a purchase is a risky or costly move. In some cases, however, a personal loan may be your best option, and can even have benefits. For example, if you're looking to buy a new car and aren't paying for it all at once, you'll likely need some kind of financing. Depending on what kind of financing you qualify for and what the seller is offering, a personal loan could be your best bet. If you can get a better interest rate on a personal loan than through financing from the seller, it's worth the effort to look for extra options.

They can also help with big events, such as weddings. While splurging on an important event like a wedding can be risky, taking out a reasonable loan can help pay for expenses that otherwise might be inaccessible. Here, a personal loan would be a much better option than using credit cards, which average interest rates of just over 16 percent. While funding important events with loans should be done sparingly, a personal loan can be the best way to do so.

Building or Improving Credit

Building or improving your credit can be a long process, and a personal loan is one of the safest ways to do it. Generally, your score will look at two types of credit: installment credit and revolving credit. Credit cards are a kind of revolving debt: there's no set amount that's being loaned and is renewed as soon as it is paid off. Personal loans, on the other hand, are a kind of installment debt, where a set amount is loaned and paid off over an agreed period of time.

Using an installment loan can help improve your credit in part because it shows that you are capable of making steady payments over time. This can indicate stability, and it can also increase the variety of debt on your report, which looks good when it is paid back on time.

If your focus is more on building credit, you can use a special credit-building loan to start building your credit report. With this type of loan, the amount you're borrowing is held at the bank until the loan is entirely paid off. This can build on itself, as once the loan is paid off, the full amount is yours, which you can then use to keep building up your credit. What's more, this can be an effective addition to using secured credit cards. 

Learn more by contacting services like Ardmore Finance.