A personal loan enables you to borrow a predetermined amount of money from a lender. It comes with a fixed interest rate and fixed term rate as well as a fixed monthly payment. The fixed monthly payments make it easier for you to set up a budget to ensure you can repay your loan.
Personal loans can be a useful tool when you need more because they are often less expensive than other forms of credit. And, while a personal loan can be used for pretty much any reason, that doesn’t mean it should.
When you take out a personal loan it’s important to remember that you are taking on debt. So, you should only do this if there is a good reason for it. Taking out a personal loan to go on a vacation or fund an extravagant shopping spree does not qualify.
Here are some of the reasons why you might take out a personal loan and where you can find one.
What’s Ahead:
Debt consolidation
A common reason that people take out a personal loan is to consolidate their debt. Debt consolidation is a way of combining multiple streams of debt from multiple creditors.
A benefit of this is that instead of having to remember and plan to pay a series of different creditors, you can just pay one. The goal of consolidation is also to ensure that your personal loan offers a lower interest rate and lower monthly payments. However, even if you find a personal loan with the same interest rate as your previous loans you can still make the repayment process easier by only having one lender.
Be sure to check out Monevo if you’re feeling overwhelmed by the number of possible debt consolidation lenders. Monevo is an online marketplace that searches more than 30 different financial institutions to help you find a lender that is right for you.
With Monevo, you can perform side-by-side comparisons of different loans on a number of important criteria including interest rates, loan terms, and lending amount. Using Monevo is also super fast and convenient. It only takes 60 seconds to see if you qualify and your credit won’t be affected because they use a soft credit check. Rates range between 1.99% - 35.99% APR.
Renovations
Have a leaky roof or need a new furnace? Many people choose to use a personal loan when they need to do home repairs or even when they want to remodel their home.
If you need to replace your roof or furnace and you don’t have the cash on hand then a personal loan might be the right option. Many people also decide to take out a personal loan when they want to update their kitchen or put in a pool.
When it comes to taking out a personal loan for “wants” remember, you still have to pay it back, with interest. So, the best idea is always to save up and make a cash purchase. However, if you decide a pool is necessary and you don’t have the money upfront, a personal loan is usually a better choice than using a high-interest source like a credit card.
Pay the bills
Sometimes there simply isn’t enough money to go around. If you’ve tightened the purse strings and you still can’t make ends meet then you might turn to a personal loan just to pay the bills.
While this is a better option than using a payday loan or a credit card be sure to research other options and compare interest rates to ensure you are getting the best deal you can.
SoFi is a great resource here. With SoFi, you input your information to prequalify for a loan. Unlike other lenders, though, SoFi’s loans are funded by investors. You simply provide some details and get a quote in a matter of a couple of minutes.
All you need to do to get started is answer a few questions on the type of loan you’re looking for and how you intend to use it. Then you’ll be able to compare a number of competing offers.
Investing
Is it a good idea for the average person to take out a personal loan and then invest it? Probably not. Especially when it comes to investing in high-risk options like the stock market.
However, people still do this and some have been successful. But it’s a risky move, even if you’re 99.999% sure that your investment will pay dividends. That 0.001% makes it not worth it. Imagine borrowing $20,000 to invest in a stock, only for your investment to take a nosedive the next day. Not only will you have to pay back $20,000, but you’ll also owe interest on that amount.
Let’s reiterate, for the average person this is probably not a wise use of borrowed money – there’s just too much risk.
Education
A college or university education in this country can be very expensive. It’s common for students to take on some sort of student loan to help cover their school costs. In certain instances, a personal loan can be a good option to help pay for school-related expenses.
For instance, with a student loan, there are restrictions on how you can use it — obviously, it has to be used for educational costs. However, a personal loan is not as restrictive. So, if you need money to pay for a cost that is not covered by a student loan then perhaps a personal loan is the right option for you.
The interest rate on the loan should be another determining factor. If you can find a personal loan with a lower interest rate then your student loan you can use it to pay off your student loan. But remember, if you use a personal loan to pay off a student loan, you run the risk of losing many of the benefits that come with a federal student loan such as forbearance (delayed payments). It’s up to you to do your homework and weigh the pros and cons.
Medical bills
Another major expense for Americans is medical bills. People have used personal loans to pay off mounting medical bills. Before you decide if a personal loan is the right method here, if you have insurance, talk to your provider and see if they can cover some of your costs. Depending on the type of medical costs you’ve accrued you might be able to get on a payment plan.
Many hospitals, doctors, and dentists will offer a payment plan to allow you to break up one hefty payment into smaller monthly payments. Again, it’s important for you to research the options available to you and choose the options with the lowest interest rate or the best terms.
Using Credible is another highly worthwhile option that saves you a ton of time and research on getting a personal loan without affecting your credit score. Fill out their two-minute form and instantly see which lenders you qualify for and at what rates.
Credible Credit Disclosure - To check the rates and terms you qualify for, Credible or our partner lender(s) conduct a soft credit pull that will not affect your credit score. However, when you apply for credit, your full credit report from one or more consumer reporting agencies will be requested, which is considered a hard credit pull and will affect your credit.Emergency
Sometimes life throws us a curveball. Whether it’s the loss of a job, a totaled car, or trying to make ends meet during a worldwide pandemic, there are times when all of us need some extra cash.
Depending on your particular emergency there might be other/better funding methods to assist with your “emergency.” For instance, if you’ve lost your job you can apply for unemployment benefits.
However, a personal loan is a much better option than something like a payday loan which charges such high-interest rates that it makes it difficult to pay them back.
You can use Fiona to help you find a personal loan with the right terms for your emergency situation.
Fiona uses a number of factors including APR, terms, speed of approval, and speed of funding to search for lenders that are most appropriate for you Fiona will then connect with them in real-time in order to provide you with an offer (if you’ve been pre-approved based on your credit inquiry and credit profile).
Special events
You want the big fancy white wedding but can’t cover the cost? Many people turn to a personal loan to cover their dream wedding or another special event. And while you can use a personal loan to cover your wedding that doesn’t mean it’s necessarily the best idea.
Before you take on a hefty personal loan, ask your present self if your future self will think it’s worth it when you’re still paying off your big day years from now. Are you willing to live on a tighter budget for the foreseeable future in order to finance one big day?
Should I get a personal loan?
While a personal loan makes a lot of sense for most people (especially considering the alternatives), it’s not the right move for everyone.
For one, you will almost definitely need decent credit to get approved for a personal loan that has worthwhile rates. Those with poor credit will have a difficult time finding a lender that’s willing to take a risk and approve the application.
Personal loans also require a repayment plan, so if you can’t fit a couple of hundred dollar payments into your budget, you’ll end up defaulting on the loan, and you’ll be in the same place you started from.
Additionally, there are some circumstances when taking out a personal loan could be a bad idea. For instance, to supplement a downpayment on a house, to fund unnecessary wants, or to partake in gambling or illegal betting.
With all this being said, personal loans are perfect for those who have room in their budget and are looking to take out a responsible loan to pay for expenses they can’t pay out of pocket for.
If you’ve decided a personal loan is the right financial move for you, below are some of the best rates right now:
Summary
Personal loans can be a great option because you can use them for virtually anything. But remember, just because you can use a personal loan to fund pretty much anything, doesn’t mean you should. It’s important to do your research and compare different lending options before you commit. Be sure to check out some of the helpful resources listed if you need any assistance in choosing the lender that is right for you.
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