A financial emergency is one such part of our life that can arise anytime, anywhere. While credit cards turn out to be of utmost help during such emergencies, yet most of us feel ashamed and even avoid using our credit cards.
One of the most common barriers between you and your dreams is the lack of financial supports that help you overcome and deal with the financial crunch you may have to face during an emergency.
However, thanks to a new form of debt (personal loan), which has within the past few years grounded itself as the best solution for those who need emergency financial backing. This new form of funding has not only helped the startups and the needy, but has also turned out to be a boon for those who may have to feel the need of instant cash when trapped in any emergency.
Today, 27.34 million consumers in America are opting for personal loans more than any other type of funding options. And within the last several years, a total of 18% 27.34 % rise has been noticed.
Now let’s find out why this increasing trend is gaining momentum each passing day:
1) Most of the people who are opting for personal loans often don’t hold any personal savings of their own. In times of emergency, they have no funds backing them as such.
“As soon as one of those life events comes up, whether it’s a medical emergency, fixing a car, getting a new car, or fixing up your house, all of a sudden that can be a trigger that puts somebody over the edge,” said Todd Albery, the chief executive of Quizzle, a Bankrate company that offers services, including free credit reports.
2) Earlier, personal loans were considered to be something that involved too much effort and time. However, ever since the process of getting personal loan has been made hassle-free and online, increasing number of borrowers are now getting increasingly inclined toward getting it.
3) Another behavioral aspect that was discovered is the fact that most consumers choose to make one payment each month. They are also further tempted by the idea of not causing damage to their credit scores just in case they miss any payments. A personal loan caters to this need of the consumers.
4) Besides, the personal loans also allow consumers to use less of their borrowing limits as compared to the offers provided by the credit card loan service providers. For instance, using more than a certain amount of your credit – card utilization ratio will automatically impact your overall credit score, while under personal loan, it isn’t so.
However, apart from the above mentioned positive points, there are a few risks involved in opting for a personal loan, as well.
For instance, in order to qualify as a rightful borrower of such type of loan, one should have a high credit score. They also need to establish a budget to ensure that their monthly payments fit perfectly along with the loan repayment.
Ultimately, as the wealth management expert of Northwestern Mutual, Chantel Bonneau rightly said, “Most of those things would be prevented if people took the time to do financial planning.”
At the end, you must consider all the risks as well as possibilities before taking any significant decision with regard to this.