iStock.com/CHRISsadowski

iStock.com/CHRISsadowski

With the right credit (and income) personal loan lenders are very willing to lend you money for a variety of reasons.

Debt consolidation, home improvements and major purchases are the top reasons people choose personal loans. Others include financing a vacation, paying your taxes or paying for medical expenses.

Still others fall into 3 categories: debt restructuring, new purchase financing and paying the bills.

Let’s talk about some of those top reasons today.

Debt consolidation

Using a personal loan for debt consolidation has a couple of benefits. It combines several loan payments into 1 monthly payment, helping to keep your monthly expenses in check.

Because personal loans are amortized, meaning the monthly payment covers the interest expense as well as the partial repayment of principal, the borrower will pay down the loan over the loan term, compared with making minimum payments on a credit card and not seeing that balance go down much over time.

The risk is in running up the balances on your credit cards all over again after you use the personal loan money to pay off the credit card balances.

Looking to consolidate debt with a personal loan? Check out the rates at Bankrate.com.

Home improvements

Using a personal loan for home improvements shouldn’t be the homeowner’s 1st choice for financing a large project. A cash-out refinancing, a home equity line of credit (HELOC), or a home equity loan, assuming that the borrower can qualify for this type of financing, may make more sense.

For smaller home improvement projects, the trade-off between closing costs on a mortgage, may be a reason to consider a personal loan instead.

Keeping the government happy

Not paying your property taxes or income taxes can have financial repercussions far beyond the interest expense of taking out a personal loan to meet those obligations. That would make for a compelling argument for a personal loan.

Taking a vacation

While I’d rather see people save for a vacation versus financing it, a personal loan can be the answer, if there are good reason to finance the vacation. With good credit and a steady source of income, personal loan interest rates can be very competitive.

When would you consider taking out a personal loan?

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