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Since the beginning of the 20th century, the demand for credit has seen a rapid growth year on year. The growth of lenders in the market is a major contributor to this growth. The customer today is smart and advancements in the digital industry have helped the average customer become well read and informed.
Earlier, to avail a personal loan, the customer used to approach the lender with the lowest interest rate. Today the scenario has changed a lot. Banks entertain customers who have a good credit score and provide them with better deals and offers on the loans taken by them. Hence, a person would always need to keep their financial profile strong.
How does a personal loan fit into this equation?
A personal loan is taken by an individual to meet any short-term obligations that require their immediate attention. You can also avail this loan for any medical or general emergency. Tuition fees, credit card bills, buying expensive gadgets, traveling to new places, etc. These are the different things that you can do with a personal loan. But, this loan has another use and that 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 defaults. Let’s take a hypothetical example;
Johnny Kane is a married man living in a rented house with his wife and child. He wants to buy an apartment of his own in a few years which will be nearer to the child’s school and his place of work. When he checks for potential home loans from various lenders, he finds out that just because he has a low credit score, 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 guarantee his credibility. So if he wants a lower interest rate on a loan, he has 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 Rs.1,00,000. Johnny realized that his credit score would improve with the benefits of repaying this loan without any defaults. He repays the loan without any default. When he applies for a home loan after a few years, he gets a better interest rate than before, as his credit score is now better and his financial profile is stronger.
This way you can use a personal loan to improve your financial profile. Banks provide their best deals and offers to those customers who have a good credit score as it reflects your ability to repay the loan without any chances of default.
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