An advantage of a bank loan is its predictability and control, offering fixed interest rates and set repayment schedules for easier budgeting, plus retaining full ownership of your business (no equity dilution). Loans provide a large, upfront sum for growth, often with lower rates than credit cards, and responsible repayment builds your credit score, but some may have origination fees or require collateral for larger amounts.
Interest rates and repayment amounts are fixed at the outset, making it easy to plan your budget and predict spending. Bank lenders do not share ownership of your company. Interest rates on bank loans are usually lower than that in other financing methods (e.g. inventory and invoice financing).
You enjoy affordable interest rates on personal loans which are tailored to your creditworthiness, income, and repayment capacity, which ensures you get a fair deal that aligns with your financial profile. Lower interest rates mean affordable EMIs, and you can repay your loan comfortably without straining your budget.
Loans are not very flexible - you could be paying interest on funds you're not using. You could have trouble making monthly repayments if your customers don't pay you promptly, causing cashflow problems. In some cases, loans are secured against the assets of the business or your personal possessions, eg your home.
Protecting your savings and or your cash flow is a good reason to take out a loan. If you're retired, or approaching retirement, your nest egg becomes a lifeline for a comfortable lifestyle and taking out a loan makes a lot of sense rather than jeopardizing future income. Another example would be buying a home.
A personal loan may improve your credit score by diversifying your mix of loans and helping you set a budget. A personal loan could hurt your credit score if you continue to borrow elsewhere or miss a payment. Some lenders allow you to see if you qualify for a personal loan without any impact to your credit score.
The 2-2-2 credit rule is a lender guideline, often for mortgages, suggesting you have 2 active credit accounts, each open for at least 2 years, with a minimum $2,000 limit and a history of two years of consistent, on-time payments to show you can handle credit responsibly, reducing lender risk and improving your chances for approval. It emphasizes responsible use, like keeping balances low, not just having accounts.
However, a personal loan could be cheaper overall if you have a good credit score as you're more likely to be offered lower rates. If you have a poor credit history, you're more likely to be offered an affordable rate on car finance than a personal loan.
Personal loans come in lump sums with fixed interest rates and are repaid in equal installments over time. Credit cards have a revolving line of credit that you can repeatedly draw from and repay. In general, personal loans are best for large, one-time expenses, while credit cards are better for daily expenses.
Taking Personal Loan is good or not depends on the purpose. It is usually more beneficial for education fees, medical bills or home renovation rather than non-essential costs like vacations.
Defaults are viewed as a high-risk indicator and can immediately trigger a loan rejection, especially if the application is made with a major bank. Overdrawing accounts or dishonoured payments, can also lead to being blacklisted, Mr Finch said.
Which option is right for you? If you want flexibility, competitive rates, and the option to buy a used car or purchase privately, a bank loan might be the better choice. If you need fast approval and are purchasing a car directly from a dealer, dealer finance could be more convenient.
Most personal loan lenders prefer applicants with good to excellent credit scores, which means a FICO Score of at least 670. The higher your score, the more likely you'll be to get approved for the best rates.
Upon accepting the loan terms, borrowers commit to making regular monthly payments according to the agreed-upon payment schedule until the loan is fully repaid. This includes paying both principal and interest, with the payment amount determined by factors such as the loan amount, interest rate and loan term.
The 2/3/4 rule for credit cards is a guideline, notably used by Bank of America, that limits how many new cards you can get approved for: no more than two in 30 days, three in 12 months, and four in 24 months, helping manage hard inquiries and credit risk. It's a strategy to space out applications, preventing too many hard pulls on your credit report and helping maintain financial health by avoiding over-extending yourself.
Applying for a personal loan can temporarily lower your credit scores by a few points. But the overall effect of the loan on your credit scores largely depends on how you manage the loan. If you make consistent, on-time payments, for example, getting a personal loan could help you improve your credit scores over time.
Most borrowers choose fixed-rate mortgages. Your monthly payments are more likely to be stable with a fixed-rate loan, so you might prefer this option if you value certainty about your loan costs over the long term. With a fixed-rate loan, your interest rate and monthly principal and interest payment stay the same.
The "car finance 50% rule," or Voluntary Termination, allows you to legally end a Hire Purchase (HP) or Personal Contract Purchase (PCP) agreement by returning the car after you've paid at least half the total amount payable (including interest/fees), giving you a way out if you struggle with payments or the car depreciates, but you won't get money back if you've paid more than 50%, and may owe for damage or excess mileage.
A 700 credit score may help you qualify for certain types of credit, like a mortgage, auto loan, or credit card. However, since credit score is only one factor lenders use to determine eligibility, you'll want to make sure other factors, like income and your debt-to-income (DTI) ratio, also reflect positively.
The golden rule of credit cards is to pay your statement balance in full every single month. This practice is crucial for maintaining a good credit score and avoiding costly interest charges.
Equifax: scores range from 0-1,000. Anything below 438 is considered poor. TransUnion: scores range from 0-710. Scores under 566 are generally considered poor or very poor.
