A personal loan is known for both benefits and drawbacks. Easy documentation and quick approval of the loan makes it a preferable choice during the time of contingencies and high-interest rates on these cash loans make you think twice while taking one. Is it a stupid decision to repay your existing loan with the help of the personal loan? Not always, there are few scenarios where having a personal loan in your portfolio is a right choice. Now, let us examine when a personal loan can be rescued to pay off the existing loan.
Does It Make Sense to Use Personal Loan To Pay Off Other Loans
High credit card debt
It has become common for the people to use multiple credit cards to meet different lifestyle needs. When you are unable to manage the payment of the multiple credit card bills, your debt starts piling up and unknowingly, you are trapped in the claws of high credit card debt. Though the credit card companies allow you to pay the minimum balance to keep your credit score unaffected, the total interest you pay on the outstanding balance in a year is more than double of the principal amount. It is wise to clear of the outstanding credit card balance with the help of the personal loan which carries less rate of interest comparatively. However, you may also consider other options like balance transfer, top-up home loan and loan against property options before thinking of these quick loans to pay off credit card debt.
When you choose balance transfer option over a personal loan to clear off the debt, make sure that you can repay the outstanding amount within the interest-free period offered by the lender to gain the advantage. The APR on the balance transfer cards will be very high after an interest-free period. If you are not sure about your ability to clear off the debt, cash loan could be rescued.
Consolidation of debt
If there are too many loans in your portfolio, there are high chances of missing payment due dates, committing errors with the EMI payment. In these scenarios, it is a good idea to consolidate all the loans with the help of the personal loan. If you have a possibility, you can choose loan against property over cash loan to consolidate the loan. However, a quick loan should be your choice to consolidate all the loans like education loan, car loan, gold loan and home loan when the average interest rate on the loans combined in not greater than the personal loan.
Most of them misconceive that a cash loan is a leisure option. In fact, you can get more benefits from the high-interest unsecured loan when you put them to use wisely.