NEW YORK, November 4, 2022 (Newswire.com) - iQuanti: Many people find borrowing money intimidating because they believe interest rates will impact their ability to pay off debts. And since banks apply interest rates to most financial products, the possibility that debt will add up too quickly to pay off is very real.
If you're worried about or struggling with high-interest rates, an affordable personal loan can help to reduce your payments and save you money. Here's how personal loans work and can help you reduce your interest rates.
How Personal Loans Work
You can use a personal loan for most purchases, including a vacation, emergency funds, or even home improvements. When applying for a personal loan, there are two basic types: A secured and an unsecured option.
Lenders that offer secured loans will require you to use collateral, like a car or home, to ensure they make their money back even if you miss payments. Lenders that provide unsecured loans do not require collateral.
Another difference is that unsecured personal loans usually have higher interest rates than secured loans. In either case, both choices of personal loans can help you benefit from a lower APR than most credit card interest rates and can be a great way to consolidate debt.
How Personal Loans Can Help Reduce Your Interest Rate
Firstly, a personal loan can be an excellent way to consolidate payments. You reduce the risk of missing or submitting late payments by bundling several monthly high-interest debt payments into a single payment. By consolidating your debts into a personal loan with a lower interest rate, you can save money on interest and pay off your debt faster.
Personal loans can also help you save on interest if you use them to refinance high-interest debt. For example, if you have a credit card with an interest rate of 15%, you could take out a personal loan at 10% and use it to pay off the credit card balance. Doing this would save you money on interest in the future and help you pay off any current debt faster.
Finally, and in a roundabout way, personal loans used in either of these ways, coupled with good credit practices, should reduce your debt over time. As you pay off debts, your credit utilization ratio improves in the eyes of credit bureaus. Once banks report back to these bureaus that you're reducing your debt, your credit score will increase. With some time, you'll have a credit score that is rewarded with favorable interest rates.
If you're considering taking out a personal loan to reduce your interest rate(s), compare offers from multiple lenders to find the best rate. And remember, personal loans are not a magic solution to all your financial problems. Be sure only to borrow what you can afford to pay back, and make your payments on time to avoid late fees and damage to your credit score.