OneMain Financial: Advantages of Personal Loans for Consumers with Limited Credit History

Having a limited credit history is not the same as having bad credit. An individual with a slim credit file either has only a few open credit accounts or has only had their accounts open for a short period.  

A personal loan may be able to help a prospective borrower with a short credit history access the funds they need and improve their financial situation in a number of ways. Below are some advantages personal loans offer for would-be borrowers with limited credit history. 

 Consolidating credit card debt  

Personal loan applicants with limited credit might only have a small number of credit card accounts. But if they fall behind on payments and have difficulty paying them off each month, opting for a debt consolidation loan could be a good move. 

Consolidating credit card debt with a personal loan gives borrowers a single monthly installment payment, typically with a lower interest rate than their existing debts.  

Easier budgeting 

A personal loan may be easier to budget for than a credit card because the monthly payment amount typically doesn’t change. Installment payments on a personal loan are the same amount each month when the interest rate is fixed for the term of the loan. This differs from credit cards, where the balance and interest rate may fluctuate over time.  

Higher borrowing limit 

A personal loan may offer a higher borrowing amount than a credit card, even if the applicant has a limited credit history. However, a borrower should only take out an amount they can afford to pay back to avoid falling into debt.    

Lower interest rate

Personal loans generally offer lower interest rates than credit cards. Unlike typical credit card interest rates, personal loan interest rates are fixed for the entire loan term. Consolidating credit card debt using a personal loan with a lower interest rate could make monthly payments significantly lower. Lower payments can help the borrower pay off credit accounts faster and might result in an improvement to their credit score.    

Collateral often not required.

Many personal loans are unsecured, meaning the borrower doesn’t need to put up collateral to be approved for the loan. For a personal loan, collateral could include a savings account, a car or an investment account, depending on what the lender requires. An unsecured loan doesn’t require collateral, however, so the borrower is not at risk of losing an asset if they default on the loan.    

Broadening a credit portfolio 

Adding a personal loan to the borrower’s credit portfolio may improve their credit mix, which accounts for part of the borrower’s credit score. An example of a good credit mix would be having credit card accounts, an auto loan, a mortgage and a personal loan. This diverse mix of credit accounts shows prospective lenders that the borrower can handle multiple types of debt at once.     

The bottom line 

Taking out a personal loan with a limited credit history can offer several advantages to the borrower. Consolidating credit card debt with a loan with a lower interest rate may lower monthly payments. A personal loan can also help build a credit portfolio and come with fixed monthly payments that make it easier to budget. The borrowing limit may be higher, the interest rate may be lower, and collateral may not be required. If the borrower pays back the loan on time, it could build a positive credit history and potentially help them get better credit terms in the future. 

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Media Contact Information
Name: Sonakshi Murze
Email: Sonakshi.murze@iquanti.com
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