Personal loans are a handy way to solve a variety of money issues such as debt consolidation or to fund a big purchase. They are one of the most accessible methods of getting finance and can be used for multiple different reasons.
However, there are both good and bad reasons to apply for a personal loan. For now, consider the top reasons why applying for a personal loan could be the right move for you.
What is a personal loan?
A personal loan is a flexible loan type people can use to fund several goals, such as debt consolidation, home improvement, medical bills, build credit, car repairs and more. These types of loans are usually unsecured so there’s no need to put up any collateral. This is one of the reasons why they are one of the most accessible types of loan.
Personal loans are not without risk though. Unsecured personal loans run the risk of lawsuit, bankruptcy and credit damage if not paid off. Furthermore, it’s not free money — lending comes with fees and interest, so you always pay more than what you borrowed. But when used correctly, personal loans can help borrowers build credit, lengthen credit history and fix financial issues.
[ Read: Secured Personal Loans vs. Unsecured Personal Loans ]
Top 10 reasons to get a personal loan
1. To consolidate debt
One of the top reasons to apply for a personal loan is to consolidate debt. While taking on more debt may seem counterproductive, it can be a good tactic if you have several high-interest debts to pay off. A debt consolidation lender pays off your creditors, then you make one monthly to your new lender, with a new interest rate and hopefully a faster payoff date.
2. Home remodeling
If your home is in need of a big remodeling job such as an extension or a new kitchen, one option is to use a personal loan. Some will use home equity loans, but the downside to this is that your home is used as collateral, which some people want to avoid. An unsecured personal loan may be a preferable way to get the necessary financing.
[ Next: The Best Home Improvement Loans ]
3. Car repair
Another common reason to apply for a loan is to cover a car repair bill. Car repair bills always happen when we least expect it. If you don’t have the funds to fork out hundreds of dollars on a major repair, you could turn to a personal loan. Many personal loans have fast application and approval times so this makes them ideal for sudden repair bills when you need the cash fast.
4. Build credit
If you have bad credit, no credit or little credit, it can be difficult to secure any type of funding with favorable terms, whether that be credit cards, mortgages or more personal loans. Even if you haven’t made any financial mistakes, it can be difficult to boost your credit without a paid-off personal loan. Taking out a small personal loan of $ 1,000 to $ 2,000 and paying it off on time over 12 to 24 months can improve your credit greatly.
[ Read: Pros and Cons of Taking Out a Personal Loan ]
5. Moving and relocating costs
For people moving to a new part of town, a different state or a completely new country, moving costs can be steep. There are plenty of costs to consider from rental deposits to moving trucks, packing boxes, storage and vehicle hire. To make the costs more affordable, you may want to consider a small personal loan so you have one less thing to worry about while you plan your move.
6. Emergency expenses
It’s hard to prepare for an emergency, whether it’s a medical problem, a broken kitchen appliance, a job loss or something else entirely. No matter what your emergency is, a personal loan can help get you through a difficult period. Not everyone has an emergency fund to fall back on, so the next best thing is an emergency personal loan.
7. Medical or vet bills
Even if you have health insurance, medical bills can quickly spiral out of control. Just a simple overnight hospital visit can leave families struggling to get by. That’s why a lot of people fall back on personal loans to get through it financially. On a similar note, if you have pets and one of them suddenly requires surgery or expensive treatment, a personal loan can also help to ease the pressure of sudden vet bills.
8. Covering bills
While regularly relying on personal loans to cover your bills is not recommended, sometimes it’s necessary. During the COVID-19 crisis, many have found themselves out of work or had their salary cut which makes covering the bills all the more difficult. If you have things like medical bills or lots of credit card debt to also cover, a personal loan could help you consolidate them or cover one-off bills that are unmanageable right now.
[ Read: Has the Pandemic Made It Easier to Get a Personal Loan? ]
9. Education expenses
For students pursuing higher education, a personal loan can fund your studies. Whether it’s a college course or a short certification in a new skill, a personal loan can help bridge the gap between need and learning. If you are looking at college, it’s worth comparing personal loans with federal student aid first, then considering the student loans.
10. Family planning
When it’s time to expand your family, you may choose adoption, fertility treatments or surrogacy to bring another human into the fold. However, these options are not inexpensive and require meticulous planning and plenty of funds. A personal loan can help with adoptions fees, IVF treatments, doctor’s appointments, legal fees and surrogacy options.
Personal loan alternatives
In some cases, a personal loan might not be the best idea. For example, you may get a better deal with a car purchase by using car financing rather than a regular personal loan. Students attending college can sometimes use personal loans, but you will likely find better loan terms with a specific education loan or federal student aid. If you want to forgo personal loan altogether, you may find better options with credit cards or a line of credit. Sometimes these products come with lower APRs, more favorable financing and easier approval processes. Additionally, if you have bad credit, a personal loan may not be the best option for you.
Personal loan FAQ
It depends. If you use it for a wedding or to buy a new gaming rig, you might find that it’s more trouble than it’s worth. But if you use a personal loan to consolidate debt, fund an emergency or pay medical bills, you may find it’s plenty worth it.
Generally under 10%. If you have excellent credit, you will find very favorable terms, low fees and easy approval. With bad credit, you may find getting a personal loan very difficult, with APRs over 35%.
About one to two business days. There are some lenders that offer same-day funding if you apply before a certain time or even next-day funding for emergencies. However, there are some lenders that may take the popular three to five business days to send funding.
Too long, didn’t read?
Whether it’s an emergency expense such as a hospital visit or a car repair or something a bit more fun like a wedding or new car purchase, personal loans are one of the preferred methods of acquiring finance. If you are thinking of getting a personal loan, research the eligibility requirements, including the required credit score. Also, be sure to compare interest rates between lenders to get the best deal.
