Everyone has bills to pay and an ever-increasing cost of living to worry about.

Deciding whether or not to apply for a personal loan will depend on your individual circumstances. If you use your personal loan correctly then it can be a very helpful financial tool.

The amount that you borrow will depend on how much you can afford to repay.

Advantages of personal loans

The main advantage of a personal loan is the fact that you can borrow money with a fixed interest rate over a fixed term. You will be granted an amount; you will then be required to repay the loan over easy to manage fixed instalments. The best way to pay your loan responsibly is to set up a direct debit that runs automatically on the date that you get paid. This way you won’t risk missing a payment or making a late payment.

Borrow money for a specific purpose

There is no rule that dictates what you should spend the money from your personal loan on, however, if you borrow the money to have your car fixed then you should use it for that purpose. If you need money to pay for a medical emergency then a personal loan could be perfect for you. Most lenders have helpful calculators available for you to use on their websites. These calculators can help you determine how much money you want to borrow and how long you would need to repay the loan. This tool is great to set up a basic budget and to ensure that you can afford the monthly payments.

Better credit, better deal

Lenders reward those that have a good credit score. The higher your credit score the more deals you will qualify for. Your good credit score will help you secure a lower interest rate and much more favourable loan terms.

If you have bad credit, however then you may not be able to qualify for a personal loan. If you do qualify, you will be charged a much higher interest rate. Those with bad credit should consider applying for a bad credit loan. These loans were developed especially for those with a low credit score.

If you have bad credit there are ways to improve your credit score. Ways to do this include requesting a copy of your credit report and sifting through the items. Make sure that you pay all your bills on time and never miss a payment. Pay off your credit card. Always pay more than the minimum amount due on your instalments. This will quickly help raise your credit score.

Using a personal loan to consolidate your debt

You could use your personal loan to consolidate your debt before it gets out of hand. This option is best for those with a good credit score as the loan terms will be more favourable. Consolidating your high-interest debt into a new loan will help you save money. This will also help simplify your financial obligations and free up some money.

If used correctly a personal loan can help you achieve your financial goals and solve a lot of your financial issues.

Could a credit card be a better idea?

There is a great debate when it comes to loans. People are unsure of whether a credit card or a personal loan is a better option. Both can provide you with money fairly quickly and both can be used to pay for most purchases. If you have a good credit score then you may be able to secure a lower interest on a personal loan than you would be able to on a credit card. If you have bad credit then a credit card could be a better option for you.

A credit card is better for short term debt and to pay for smaller purchases. While a personal loan allows you to borrow a larger amount of money over a much longer loan term. A credit card is a revolving line of credit. When you pay off the instalment each month you will gain access to the credit once again.

So, what about a personal loan?

A personal loan will also need to be repaid over a fixed term but you won’t be able to access additional funding. A credit card provides an easy way to pay for things one buy now pay later principle. The only negative that a credit card has is that if you don’t repay the entire balance due each month you will end up paying a higher interest rate and be trapped in a cycle of revolving debt.

Credit card companies want to keep you in debt. They do this by providing an enticing option to only pay the minimum amount due each month. The problem is that you are charged interest on the entire outstanding amount so this could prove quite costly.

Credit card benefits

If you use your credit card correctly and make your payments on time. You will have the option to increase your credit card limit. This can be tempting but you should never spend more than you can comfortably repay. Other benefits of credit cards are that they are easy to apply for, easy to obtain and offer great introductory offers such as balance transfers that offer a lower interest rate and 0% interest periods.