Personal loans can be used for almost anything. Although they might be called different things, such as travel loans, consolidation loans or medical loans, personal loans work the same.
Personal loans are usually unsecured. They’re not secured by collateral such as your house or car but instead are based on your creditworthiness. You can get interest rates as high as 36% or higher and up to seven years of repayment terms.
Personal loans can be used to improve your financial situation, such as paying off high-interest consumer debts or financing a home renovation project that could increase your home’s value.
Is there a reason to take out a personal loan?
Consolidate your debt
A personal loan can be used to consolidate debt that is too large. A debt consolidation loan is a loan that consolidates multiple unsecured debts such as credit cards, medical bills and other debts into one payment. It usually has a lower interest rate. This can save you money and help you pay off your debt quicker.
Home improvement project
A personal loan can be used to finance a home improvement project such as a bathroom remodel or kitchen renovation. This project should increase your home’s value.
Personal loans are not like other options for home improvement financing. However, you might pay more interest.
You might also consider a line of credit or a home equity loan. Both options draw on your equity, so you might get a lower interest rate, a longer repayment period, and possibly a loan or line of credit with a longer-term. However, your home is collateral, and you may lose it if the loan is not repaid.
Refinance an existing loan
A personal loan to refinance an existing mortgage can be obtained from many lenders at a lower interest rate. Refinancing at a lower interest rate can help you save money and pay off your debt quicker, often without prepayment fees.
You may be eligible for a particularly competitive rate if your credit score has improved since the original loan was taken out. You can view potential rates by taking the steps required to pre-qualify. This will not affect your credit score.
There are other reasons you might need a personal loan
Personal loans are smart for refinancing your debt and investing in your house. However, there are other situations where you might consider taking one out after you have ruled out cheaper options.
Medical bills
Personal loans are available to pay for medical, dental, and other healthcare costs.
However, the medical loan can be costly to finance your healthcare. It would be best if you looked at other options first.
Alternatives: You can set up a payment schedule with your provider or hospital to pay off any medical debt. These plans typically charge very little interest and are usually free of interest. You can also get a medical credit card with interest-free periods from six to twelve months, traditionally reserved for certain medical procedures.
Weddings, vacations, and other discretionary costs
Some big-ticket life events may require outside financing. The national average wedding cost is $28,000. Not every couple can afford to pay this amount. You can use wedding loans to make up the difference.
It is possible to spend a lot on a big vacation. While pay now, fly later is becoming more popular, traditional vacation loans can still be used to fund your dream trip.
Alternatives: You can cut expenses for non-essential expenses to increase your savings. A cash-back or travel credit card might be better than a personal loan. You’ll get rewards for your purchase.
Emergencies
A personal loan is a great option if your car has a problem or needs money to repair your home. Personal loans are often better than payday or pawnshop loans, with triple-digit interest rates.
Search for small personal loans with a maximum APR of 36% to avoid falling into debt. Make monthly payments and plan to repay the loan as soon as possible.
Alternatives: A Paycheck Advance, a Payday Loan, or funds from a Local Community Organization may be options. These can help cover emergency costs with minimal or no interest. These options are often more affordable than personal loans.
