Since the beginning of the 20th century, the demand for loans has grown rapidly year by year. The increase in lenders in the market is a major contributor to this growth. Today’s customers are smart, and advances in the digital industry have made the average customer well-read and informed.
Before taking out a personal loan, the customer rushed to the lowest interest rate lender. Today, the scenario has changed dramatically. Banks entertain customers with good credit scores and offer better deals and offers on the loans they take. Therefore, individuals should always keep their financial profile strong.
How does a personal loan fit into this equation?
Personal loans are borne by the individual to fulfill short-term obligations that the individual needs immediate attention. You can also use this loan for medical or general emergencies. Tuition fees, credit card invoices, buying expensive gadgets, traveling to new locations, and more. These are many things you can do with a personal loan. However, there is another use for this loan, which is to strengthen the financial profile.
Yes, you can improve your credit score and thereby take advantage of your personal loan and enhance your financial profile by paying it back on time without defaults. Let’s look at a fictitious example.
Jonny Kane is a married man who lives with his wife and children in a rental apartment. He wants to buy his apartment near his child’s school and his workplace within a few years. While he checks the potential for mortgages from various lenders, he finds that he is getting a mortgage at a higher rate just because his credit score is low. Johnny then decided to do something about it.
He finds out that his credit score is weak and therefore the bank cannot guarantee his credibility. Therefore, if he wants to lower the interest rate on the loan, he needs to improve his credit score. Johnny applies for a personal loan to the bank for two years. Interest rates are high and the loan amount is 100,000 rupees. Johnny found that the benefits of paying off this loan without default would improve his credit score. He pays off the loan without default. A few years later, when you apply for a mortgage, you’ll get higher interest rates than before, just because your credit score has improved and your financial profile has improved.