Personal and Consolidation Loans: What’s the Difference?
If you’re in need of some quick cash, personal loans are some of the best ways to get it. They’re highly versatile and can be used for almost anything. They also typically have lower interest rates than credit cards, so many people use them as viable payment options if they need something urgent.
One of the most popular ways people use their loans is by consolidating high-interest debts into a lower-cost monthly payment. In this case, they’re often referred to as debt consolidation loans. With that said, is there a real difference between personal and debt consolidation loans? In this article, we will discuss these terms and how they can affect one’s finances and credit scores.
Are Debt Consolidation Loans the Same as Personal Loans?
In essence, debt consolidation loans are no different from personal loans—they’re just one of the many ways to use the borrowed funds. We can define personal loans as a form of installment credit that a borrower can use however they want. They’re a quick and easy method to get the funding you need for any purpose you wish.
You can use personal loans to fund a once-in-a-lifetime honeymoon, buy a car, pay for rent, or even consolidate your debts. Depending on the lender, they may allow you to borrow around $1,000 to $20,000, and some may even lend up to $100,000. You typically will receive the money as a check or deposit to your checking account, and you may spend it however you see fit. Usually, the first payment will be due after one month.
Personal loans are a form of unsecured credit, which means you don’t have to use any asset as collateral. You can rest assured that the lending institution will not seize and sell your property. However, borrowing money will entail paying an interest fee.
Some lenders market their services as “debt consolidation loans” to appeal to those who want to unify their debts, but these are often the same as personal loans.
When Should You Use Personal Loans to Consolidate Debts?
Before taking out personal loans to consolidate your debts, it’s best to assess your current finances. It’s advisable to ensure that you can afford new monthly payments and save money over the long term. Debt consolidation can offer many benefits, and you may apply for them if you need to pay high-interest liabilities, streamline your payments, and want a fixed and predictable payoff date.
Will These Loans Affect Your Credit Score?
As with many other borrowing transactions, personal and debt consolidation loans have an effect on your credit score, which can either be positive or negative. Some lenders conduct hard credit inquiries, which can reduce your score slightly, but you can likely raise it again within a few months of payments.
If you miss any payments, you may harm your credit score. On the other hand, paying on time and in full every month will help you build a positive payment history, bringing up your score significantly.
Apply for Personal Loans Today
Personal loans are convenient ways to get quick cash for any reason you see fit. You may use them to finance a wide variety of expenses, and you can even consolidate your debts into one predictable, lower-interest monthly payment. It can affect your credit score either positively or negatively, but more often than not, the benefits heavily outweigh the risks.
If you’re ready to take out personal loans in Centerpoint, AL, Parkway Finance Company has you covered. We’ll provide you with a wide variety of financing options that best suit your needs and income. Apply now to avail of our affordable loans!