Since the beginning of the 20th century, the demand for loans has witnessed a rapid growth year on year. The increase of lenders in the market is a huge contributor for this growth. The customer today is smart and the advancement in the digital industry has helped the average customer to be well read and informed.
Earlier to avail a personal loan, the customer would run to the lender with the lowest rate of interest. Today, the scenario has changed drastically. Banks entertain customers who have a good credit score and provide them with better deals and offers on the loans taken by them. Hence, an individual would need to always keep his / her financial profile strong.
How does a personal loan fit into this equation?
A personal loan is taken by an individual to fulfill any short-term obligations which need their immediate attention. You can also avail of this loan for any medical or general emergency. Tuition fees, credit card bills, purchase of an expensive gadget, traveling 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 thus strengthen your financial profile by availing a personal loan and repaying it on time without any default. Let's take a hypothetical example;
Johnny Kane is a married man living with his wife and kid in a rented apartment. He wishes to purchase an apartment of his own in a couple of years which will be near to the kid's school and his workplace. While he checks for possible home loans from different lenders, he realizes that only because his credit score is low, he is getting a home loan at a higher rate. Johnny then decides to do something about it.
He finds out that his credit score is weak and hence no bank can vouch for his credibility. Hence if he wants a lower rate of interest on any loan, he will need to improve his credit score. Johnny applies for a personal loan with a bank for a period of 2 years. The rate of interest is high and the loan amount is 1,00,000 rupees. Johnny realized that the benefits of repaying off this loan without any defaults will improve his credit score. He pays off the loan without any defaults. Couple of years later when he applies for a home loan, he gets a better rate of interest than before only because his credit score now has improved and his financial profile is strong.
This is how you can use a personal loan to improve your financial profile. Banks offer their best deals and offers to the customers who have a good credit score as it showcases your ability to repay off the loan without any possibility of defaulting.