Personal loans are borrowed money that can be used for large purchases, alleviate financial hardships or even just supplement an expensive occurrence. These loans are paid back in monthly installments over the course of typically two to six years, but it can take longer depending on your circumstances and how diligent you are with making payments. Although it may seem frivolous to take out a personal loan for, well, personal reasons, it can be greatly beneficial in certain instances and when used and paid back correctly.
Here are the top six reasons to apply and secure a personal loan.
- Consolidate debt
- Alternative to a payday loan
- Finance home remodeling
- Money for moving expenses
- Unplanned emergency expenses
- Make a large purchase
1. Consolidate debt
Debt consolidation is one of the most common rationales given for taking out a personal loan. Imagine carrying multiple loans or outstanding credit cards that all have varying interest rates and balances due. That’s a recipe for financial trouble, and it’s also where personal loans can step in to help.
When you apply for a loan and use it for debt consolidation, you’re combining all of those outstanding balances into one monthly payment. This grouping of debt makes it easier to work out a timeframe to pay off your balances without getting overwhelmed.
One of the best advantages of using a personal loan to pay off your credit cards is the lower interest rates. With lower rates, you can reduce the amount of interest you pay and the amount of time it takes to pay off the debt. Consolidation allows you to pay off credit cards in finite terms with a clear end date in sight.
2. Alternative to a payday loan
If you’re facing financial hardships, you may be tempted to take out a payday loan to help you get by in the interim. However, payday loans are often predatory and can leave you much worse off than before. Therefore, before pulling the trigger on a deal with a payday lender, consider a personal loan instead.
Though payday loans may be easy to get, they carry extreme risks if you can’t pay back the amount owed in the time agreed upon. Some payday lenders charge interest rates in excess of 400%. Personal loans, on the other hand, are typically more straightforward and incur much lower APR rates.
3. Finance home remodeling
A personal loan can be a great option to pay for home remodeling, according to Kristin Shuff, senior vice president of marketing at LightStream, an online lending division of SunTrust Bank.
Whether you want to put on a new roof, install solar panels, remodel your kitchen or add a swimming pool, hot tub, landscaping or hardscaping, if you don’t currently have the cash on hand, a personal loan can be a big help when it comes to home improvements.
Furthermore, a personal loan is a good fit for people who don’t have equity in their home or don’t want to get a home equity line of credit or HELOC, Shuff says.
4. Money for moving expenses
You probably won’t need to take out a personal loan to relocate over a short distance. However, if you’re facing a long-distance move, perhaps for a new job opportunity, then costs can be expensive enough to warrant applying for a personal loan.
Personal loan funds can help you move your household belongings from one place to another, purchase new furniture for your new residence, transport your vehicle across the country and any other expenses you may incur.
Before pursuing a personal loan to help cover your big move, consider whether your new income will enable you to pay off your loan balance. This consideration will help you avoid the added stress of paying off your personal loan on top of starting a new career in a new location.
5. Unplanned emergency expenses
Finance funeral expenses
Some people forget to talk about funeral expenses when discussing the main reasons for personal loans. Though it may be an area that is uncomfortable to consider, personal loans can be a helpful resource in the event of a family member’s death. In short, funerals are expensive. Between the burial plot, casket, funeral home services and other factors, costs can quickly add up to thousands of dollars.
If a deceased person’s estate can’t afford those expenses, a family member or other person may choose to apply for a personal loan to cover the deceased’s final costs.
Pay medical bills
Medical expenses are a significant reason people go to lenders for personal loans, LightStream’s Shuff says.
Common medical treatments that may require the use of a personal loan include dental work, cosmetic surgery, fertility treatments and other procedures that can cost $5,000 or more. Ancillary expenses like medical travel, parking, medications and aftercare also can be effectively financed by a personal loan.
6. Making a large purchase
Household disasters can strike unexpectedly. If you suddenly need to buy a new washer and dryer but don’t have the funds on hand, a personal loan can provide great relief. Other large purchases, such as an entertainment center or gaming computers, can also end up costing more than what you have in your checking or savings account. Although it’s nice to have entertainment items in the home, it’s probably best to use personal loans for appliances like washers, dryers, ovens, bathrooms and other necessities.
Personal loans allow you to purchase major household appliances and electronics immediately, rather than having to wait months to save up for them. Though you may incur some loan fees, a personal loan can save you time and money in the long-run, since you’ll be able to avoid using laundromats and other short-term but expensive alternatives.
Buy a car, boat or RV
You can also apply for a personal loan when considering a larger purchase like a car, boat, or recreational vehicle. After all, most people aren’t walking around with tens of thousands of dollars at their disposal.
Examples of other large purchases that may require a personal loan include tiny homes, motorcycles, snowmobiles, and horses complete with trailer, saddle and other equestrian equipment.
“All the secondary expenses that come with that horse purchase can be rolled into the loan,” Shuff says.
If you can’t qualify for a secured loan with a lower interest rate, a personal loan can cover larger purchases.
Pay for a wedding
When you hear people talk about wedding loans, what you’re really hearing about are personal loans. In some cases, it’s a good idea to take out a personal loan before you walk down the aisle.
A wedding loan can be used for big-ticket items like the venue and bride’s dress, as well as smaller expenses like flowers, photography, cake, and a wedding coordinator.
“It gives you the flexibility to pay for all those pieces, whether you’ve contracted it through one place or put it together a la carte,” Shuff says.
You can also consider paying for the engagement ring with a personal loan. Depending on the kind of ring you’re getting, engagement rings can easily cost several months of your salary. If you don’t want to deplete your savings account, consider a personal loan to help make your engagement and wedding exactly the way you always dreamed it to be.
Take a dream vacation
Your average vacation might not cost enough to necessitate taking out a personal loan, but what about a honeymoon or a luxury cruise? That’s where things can get pricey and a personal loan can help.
Just as personal loans can help pay for your wedding, they can also be used to help you see the world. Whether you’ve just graduated and want to go on a trip, or you’re celebrating an anniversary, personal loans can help you finance your dream vacation.
Keep in mind
At the end of the day, a personal loan can be used for anything and isn’t limited to the factors listed here.
And though there are many different reasons to take out a personal loan, remember that no matter the circumstance, it must be paid back eventually. When you take out a personal loan to pay off credit cards or to throw the perfect wedding, you are borrowing money that must be repaid with interest on top. Personal loans are a great way to consolidate debt and make major purchases, but you should always utilize this financial resource responsibly.