A guide to some of the uses for personal loans
A personal loan can be a great financial tool, but can you really use it for anything? Well, within reason, yes. The appeal of a personal loan is the funds can be used for a wide range of things, from debt consolidation to major purchases. In this article, we’ll take a look at some of the reasons to apply for a personal loan – and when it might not be the best solution.
Personal Loans for Debt Consolidation
A personal loan can be a great tool in erasing high interest rate debt, especially if that debt is from credit cards. Because the funds from your loan pay off your other debts, you eliminate multiple monthly payments, literally consolidating them all into one payment. Personal loans typically offer lower interest rates, too, meaning you may be able to save money if you consolidate your debt into a personal loan. That extra pocket change can be set aside to start building your Savings Account. In addition, the interest rate on personal loans is fixed, so you don’t have to worry about the amount of your monthly payment changing. The example below shows how a personal loan could save you over $1,800! Learn more on using a personal loan for debt consolidation here.
Personal Loans for Home Improvements
You may have plans for your home that require a bit more money than you’d like to charge to your credit card, but you may not necessarily want to tap into your home’s equity to finance them, either. A personal loan could be exactly the solution you need; financing home improvements is one of the many uses for personal loans. Because they typically carry a lower interest rate than credit cards, they are a more attractive option when it comes to big-ticket purchases like upgraded appliances, a new roof or even that pool you’ve always wanted. Keep in mind that if you plan on doing several costly home projects or major renovations, a home equity product may be a better solution. Be sure to talk to your financial institution to determine which is right for you.
Personal Loans in Emergencies
Life has a way of surprising us in all of the ways we don’t want, and many of us don’t have a Savings Account sufficient enough to handle major emergencies. When you get thrown a curveball, you may not have to max out your credit card to handle it. Personal loans have the flexibility to come in varying amounts, meaning you can apply for exactly how much you need. Because the interest rate is fixed, you’ll be able to estimate your monthly payment and adjust your budget accordingly.
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Personal Loans for Medical Expenses
Unplanned medical expenses can use up your Savings faster than you may think. If you are faced with major medical expenses, you have options. While reaching for your credit card may be your first instinct, keep in mind that doing so will often add a hefty interest rate to those expenses. A personal loan, on the other hand, will likely carry a lower interest rate as well as a fixed term, giving you the comfort of knowing exactly when your loan will be paid off. Try talking to your medical provider first. Often, they are willing to work with you to establish payment plans. Once that route is exhausted, consider a personal loan to avoid using higher rate credit cards.
According to the Centers for Medicaid and Medicare Services, out of pocket healthcare expenses grew to $365.5 billion in 2017*.
Personal Loans for Education
When it comes time to pay for higher education, it can feel more than a bit overwhelming. It’s smart to always pursue what is referred to as “free money” first; in other words, look for financing made available via scholarships and grants. Federal loans are often the next best bet, as they typically carry lower interest rates. Once those options are exhausted, though, a personal loan may be the solution you need. With fixed rates and flexible terms, a personal loan can help you fill the funding gap without insurmountable debt after graduation.
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When not to use a Personal Loan
While personal loans are a great financial tool, they aren’t always the right solution. Here are some times when applying for a personal loan may not be your best bet.
- You can save for the purchase. If you have the ability to save up for the purchase, do so. You will avoid adding debt to your credit report, keeping your credit score intact, and maintain a healthier cash flow.
- You want to pay off a credit card so you can keep using it. Debt consolidation is a great tool, as long as you don’t pile the charges back onto your card. The purpose of debt consolidation is to eliminate those payments, not add to them. If you need to pay bills with your credit card, talk to your financial institution about bigger-picture financial solutions.
- You’re splurging. There’s nothing wrong with treating yourself, or your family. Bear in mind, though, that a personal loan is a financial commitment. If taking out a personal loan is going to impact your savings goals, it may not be the right time to make that purchase.
Because the funds from personal loans can be used for such a wide variety of reasons, they can be a powerful financial solution. With lower interest rates and fixed terms, they are often a sound alternative to credit cards. Applying is easy and can often be done completely online. Find out if a personal loan is the right choice for you.