Good reasons to use a personal loan
You can use funds from a personal loan to pay for anything. But some of the best uses include paying off credit card debt, covering unexpected financial emergencies, or financing the cost of home repairs.
Here are some of the most common reasons for using a personal loan.
Debt Consolidation
Debt Consolidation is one of the most popular uses of personal loans. It’s no surprise: many credit cards charge interest rates of 19% or more. If you’re racking up thousands of dollars in credit card debt, those high interest rates can skyrocket the amount you owe each month.
This is where personal loans can help. You can take out a personal loan and use the money from it to pay off your high-interest credit card debt. You will then repay your personal loan in regular monthly installments.
It’s a smart financial move if you can get a lower interest rate on your personal loan than you’re paying on your credit card debt. Suppose your credit card charges you an interest rate of 18.99%. If you qualify for a personal loan with an interest rate of 10.3%, you can save a significant amount of interest by swapping your higher rate credit card debt for a personal loan.
Just make sure you don’t run up debt on your credit card again. This will leave you in an even worse financial situation, as you will now have a personal loan to pay off in addition to your new credit card debt.
Home improvements
You need to finance minor repairs or improvements to your home, but you don’t have enough equity to qualify for a home equity loan Where cash refinance? A unsecured personal loan can help.
Many homeowners turn to home equity loans or cash refinances to cover the cost of expensive home repairs or upgrades. But to take out one of these loans, you will need sufficient equity in your home. If your home is worth $250,000 and you owe $100,000 on your mortgage, you have $150,000 of equity to borrow against in the form of one of these types of loans.
But what if you just bought your home and haven’t accumulated enough capital? Or what if you have no equity in your home? If your home is worth $250,000 and you owe $245,000 on your mortgage, you may not have enough equity to take out a home equity loan or cash refinance.
Instead, however, you can apply for an unsecured personal loan. An unsecured loan is one in which you do not put up any collateral. In a home equity loan, your home is your collateral. If you don’t repay your loan, your lender can take foreclosure action against you and possibly take your home.
With an unsecured loan, your lender has no collateral to take if you stop making your payments. This makes these loans riskier, which is why lenders usually charge them higher interest rates.
You can, however, use a personal loan to pay for small to medium-sized repairs and improvements to your home. Your interest rate will be higher than with a home equity loan or cash refinance. But these are options if you don’t have enough equity.
Moving expenses
Moving to a new home is not cheap. ConsumerAffairs estimates that it costs between $600 and $1,000 to hire movers for a local move, a move from one location in your state to another. Moving to another state, however, can be more expensive: ConsumerAffairs estimates that it costs an average of $5,000 for a move that crosses state lines. The costs of such a move can climb to $10,000, according to the publication.
It can be difficult to pay for these expenses out of pocket. A personal loan can give you the money you need to meet moving expenses such as hire professional moversbuying packing supplies, renting a moving truck or buying new furniture.
Unexpected bills
No one likes unexpected expenses. And when these expenses are unavoidable emergencies? They are even more unwelcome.
Those unexpected bills are another reason people turn to personal loans. Taking out a loan with an 11% interest rate is a better choice for paying off unexpected emergencies than putting those surprise expenses on a credit card that charges 19% interest.
Some of the unexpected expenses you could cover with a personal loan include:
- Medical bills
- Car repairs
- Funeral expenses
- Job Loss
- Unexpected trip
Major purchases
Need to make a big purchase, like new furniture for your apartment or a new computer for your freelance career? A personal loan might be a better option than putting that big expense on a high-rate credit card. interest rate. A personal loan is also a better choice than emptying your savings account to pay for a major purchase. If you deplete your savings, you are vulnerable if you face unexpected expenses.
Vehicle financing
If you need to buy a car and your credit rating is too low to qualify for a traditional car loan, a personal loan can help. Since personal loans charge higher interest rates than car loans, you can usually qualify with a lower credit score.
However, using a personal loan may limit the type of car you can purchase. Personal loans tend to have lower limits than traditional car loans, which limits the cost of your new car.
Wedding expenses
The average cost of a wedding reached $28,000 in 2021, according to Knot’s Real Weddings study. That’s a lot of money. If you need help paying for that DJ, caterer, dress, and reception hall, a personal loan could help.