Since the beginning of the 20th century, the demand for loans has grown rapidly year after year. The increase in lenders in the market contributes greatly to this growth. Today’s customer is smart and the advancement in the digital industry has helped the average customer to read and inform themselves well.
Before making use of a personal loan, the client would go to the lender with the lowest interest rate. Today, the scene has changed dramatically. Banks entertain customers with good credit scores and give them better deals and deals on the loans they take. Therefore, a person should always keep his financial profile strong.
How does a personal loan fit into this equation?
A person takes out a personal loan to meet any short-term obligation that requires his immediate attention. You can also make use of this loan for any medical or general emergency. Tuition fees, credit card bills, purchase of an expensive device, trips to new places, etc. These are the different things you can do with a personal loan. But, there is one more use of this loan and that use is to strengthen your financial profile.
Yes, you can improve your credit score and therefore strengthen your financial profile by making use of a personal loan and paying it back on time without any default. Let’s take a hypothetical example;
Johnny Kane is a married man who lives with his wife and son in a rented apartment. He wants to buy an apartment of his own in a couple of years that will be close to the boy’s school and place of work. As you search for potential home loans from different lenders, you realize that just because your credit score is low, you are getting a higher rate home loan. Johnny then decides to do something about it.
You learn that your credit score is weak and therefore no bank can vouch for your credibility. Therefore, if you want a lower interest rate on any loan, you will need to improve your credit score. Johnny applies for a personal loan with a bank for a period of 2 years. The interest rate is high and the loan amount is Rs 1,00,000. Johnny realized that the benefits of repaying this loan without defaults would improve his credit score. Pay the loan without defaults. A couple of years later, when you apply for a home loan, you get a better interest rate than before just because your credit score has now improved and your financial profile is solid.
This is how you can use a personal loan to improve your financial profile. Banks offer their best deals and deals to clients who have a good credit score as it shows their ability to repay the loan without any chance of default.