Personal loans can help you when you need to borrow money for a variety of reasons. This type of lump sum loan is repaid in monthly installments over a fixed period, generally between one and seven years. The amount you can borrow will depend on your credit history, but common offers are between $ 1,000 and $ 50,000 and up to $ 100,000.
As it seems, a personal loan can be used for personal purposes. With any debt, it is essential to consider the impact of the payment on your finances, but there are many situations where a personal loan can be a good choice.
1. Debt consolidation
If you have multiple loans outstanding with high interest rates, combining them into one can help lower your monthly payment. This is called “debt consolidation” and it is one of the most common reasons people take out a personal loan. The personal loan often has a lower interest rate than some other debt you might have, which can reduce the total amount you will pay back over its term.
Credible makes it easy to find the best personal loan for this purpose – just insert your desired loan amount into their free online tool and you can compare rates and terms from multiple lenders at once without affecting your credit score. credit.
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Be careful if you use a personal loan to pay off credit card balances. One pitfall could be to be tempted to charge new debt on these cards. You will have to practice self-control, or you could find yourself in a worse situation than before to consolidate your debts.
If your credit is good, you can also look for balance transfer cards that offer 0% APR. You can transfer your credit card balance and pay it off without interest.
Credible can also help you view multiple zero percent credit card options to see which one makes the most sense for you if you decide it makes the most financial sense.
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If you go this route, be sure you can pay it off before the promotional period ends. If you don’t, you’ll have to pay accrued interest from the original date of the transfer, which can be much higher than the interest charged on personal loans.
2. Cover emergency expenses
According to the Federal Reserve, only 40% of Americans have a fully funded emergency account, which covers three to six months of spending. If something does arise, you may need to resort to a personal loan. Emergency expenses can consist of unforeseen medical bills, expensive car repairs, or even funeral expenses. Each of these situations can quickly add up to a few thousand dollars, or even more. Even if you have insurance, you may have to pay a high deductible.
A personal loan could help in these situations, which are often stressful. Just use Credible to compare personal loan rates from some of the top personal lenders.
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Once you are back on your feet, you can start building your emergency fund so that you don’t have to face this dilemma again.
3. Make a big purchase
A personal loan can also finance a large purchase, such as a new appliance, a car, or an engagement ring. You can also use it to pay for tuition, a wedding, or a vacation. In these cases, however, it is best to consider your needs over your wants. Buying a car can help you get to work. Paying tuition fees can help improve your career prospects. And replacing an old refrigerator or stove can help you maximize your food budget. If you’re using a personal loan for a large purchase, make sure the monthly payment is within your budget. And look for the best deal on that big purchase, so you won’t be tempted to get a loan that’s bigger than you need.
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4. Pay the moving expenses
According to Moving.com, an average local move costs $ 1,250, while a long-distance move costs an average of $ 4,890. If you’re moving because of a new job or family situation, taking out a personal loan can help pay for the expenses. You may also need to purchase new furniture or household items for your new home or pay travel expenses. Before you go into debt to move, make sure that your new income will be enough to cover the monthly loan payment.
Don’t worry about having to go through personal loan options yourself. Credible can help you compare personal loan companies (and hopefully get you the lowest rates).
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5. Renovate a house
Renovating your home can increase its value and make necessary repairs that protect your investment. A personal loan is an option for obtaining financing for projects such as replacing the roof, updating the kitchen or finishing the basement. If you have equity in your home, you may decide to opt for a home equity line of credit or a home equity loan. However, personal loans might be a good choice as they don’t require collateral which means you don’t put your home at risk if you can’t pay it back.
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6. Start a small business
Almost two-thirds of Americans want to own their own business. And as the saying goes, “It takes money to make money.” A personal loan can be a great way to get the financing you need to start your own business. You can use it to hire a website designer, order initial inventory, pay your rent, or cover payroll until you start generating income. Make sure your business plan includes a way to make your monthly payments while you start your business.
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The bottom line
Personal loans can be used for a wide variety of reasons, but there are two things every borrower should do before applying. First, find the best personal loan rates.
You can explore your personal loan options, get prequalified rates without hurting your credit score, and find multiple lenders all in one place by visiting Credible.
Second, make sure the loan is within your budget. Visit Credible and use their personal loan calculator to estimate the monthly payment. Remember that you will be paying interest on the loan, so use one responsibly. That boat or that vacation can be fun, but you don’t want the expense of it taking a toll on your credit rating and long-term financial health.