What Are Personal Loans Used For

A personal loan is typically an unsecured loan offered by a credit union, bank, or other financial institution. You can apply for a personal loan online or in-person. Such loans are used for a wide variety of purposes.

The terms of repayment for personal loans can range from two to six years, or longer. The repayment term, along with your credit history, determines the annual percentage rate (APR) of your loan. You can get lower monthly payments on loans that have a lower APR or extended repayment periods (or both).

The following are some uses for a personal loan.

Consolidating your debt

People take out personal loans most commonly to consolidate debt. For example, do you have multiple loans or credit cards will different APRs, balances, and due dates? If so, you can use a loan to combine those balances into one monthly payment.

Consolidating Debt Alternatives

The other advantage of using a personal loan for debt consolidation is potentially lower interest rates. Find a loan with a lower interest rate than your credit card, and you will save money in the long run. Making on-time payments also looks good to the credit bureaus and positively impacts your credit report.

Try not to use those credit cards until after you pay off the debt. Otherwise, you can put yourself into even more trouble if you treat a loan as an opportunity to spend more money.

Emergency expenses

Emergencies happen, and you may not be financially prepared to handle one. Some emergencies could include:

  • Medical bills – Medical expenses can add up fast. Many people get personal loans to cover debts from long hospitalizations, surgical procedures, cosmetic surgery, and other expensive operations. However, it may be helpful to first contact your health provider for options before taking out a loan.
  • Funeral expenses – Funeral costs usually add up to thousands of dollars. They could be a sudden financial burden to family members if there were no other plans for payment in place. Some people take out personal loans to pay for funerals for family or friends.
  • Car repairs – No one plans for their car to breakdown or get damaged. You need your vehicle to get you to work, transport your family, or get you around safely. A personal loan can help you get your car back on the road a lot faster.

Another reason that people choose to get a personal loan (for emergencies) is that they are better than a payday loan. Payday loans tend to have higher interest rates and faster repayment times.

Paying other debt

While not recommended, you can use a personal loan to pay other kinds of debt, such as:

  • Student loan debt
  • Tax debt
  • Debt from collection agencies

These debts can often feel as though they are constantly looming over you. Odds are, you want to pay them off as fast as possible. However, if you pay for student debt with a loan, you forfeit the chance of ever getting deferment, forbearance, or debt forgiveness.

If your debt is with a collection agency, getting a personal loan may help your credit score. But you’ll be signing up to pay interest on the amount you owe, which collection agencies typically don’t charge.

Necessary big expenses

You might need to shell out a lot of money for unavoidable circumstances. If you don’t have any savings, a personal loan can help you get what you need now and pay it back later. Big expenses could include:

  • Home repairs or renovations – You can use a loan to cover emergency home repairs, such as replacing a damaged roof or extensive fumigation.
  • Car purchase – You can typically get an auto loan to finance your vehicle. However, personal loans don’t require down payments as auto loans do.
  • Weddings – Weddings can cost a small fortune. You may be able to find a loan with a better interest rate than a credit card.

Other personal expenses

With a personal loan, you are not limited to how you use the money. Though it is not recommended, you could even use a loan to cover non-essential expenses. For instance, you may want to:

  • • Pay for a dream vacation for yourself or others
  • • Buy a boat or a motorcycle
  • • Buy expensive goods such as jewelry, appliances, or technology
  • • Repay debts owed to family or friends

Keep in mind that while you can use a personal loan for almost anything, you need to consider all of your options first. No matter what your loan amount is, or what you use it for, you will need to pay it back with interest.

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