When is the last time you found yourself in a money pinch and you weren’t quite sure how you’re going to pay for it? Or how about the last time you felt overwhelmed by the number of monthly credit card payments you have and all the different due dates you have to keep track of? Wouldn’t it be easier to consolidate all of them into one payment? Sometimes we could use just a little help getting through tough financial times and personal loans are often that little extra support when we need it most.
Personal loans are different from a car loan or a mortgage because there is usually little to no collateral required to initiate the loan. On an auto loan, for example, a lender provides money for you to buy a car and you promise to repay it over a set amount of time. If you fail to pay back your loan, your car will be repossessed and sold in hopes that the lender can make back their money.
With a personal loan, however, there is often no collateral. Banks generally do not care what you do with the money as long as you pay them back as promised. This flexibility allows you to use personal loans for many different expenses should you find yourself in need of some extra cash.
Before we dive into a few of the many purposes that a personal loan can serve, a fair bit of advice: Not all loans are created equal. Some lenders charge more than others in fees, and this can drastically change the overall amount of what you end up paying back. More on that later; first let’s take a look at five different ways that you can benefit from a personal loan.
1. Debt Consolidation: Make one payment instead.
For those with multiple credit cards (or other sources of debt), a personal loan can help consolidate all of the payments into one, or debt consolidation. The idea here is that making one payment is much more manageable than just making the minimum payments on multiple credit cards. Perhaps a few of these credit card accounts are creeping upwards towards the balance limits and it’s negatively impacting your credit score. Personal loans can carry significantly lower interest rates than credit cards. Although much of this depends on your financial status and credit score, a personal loan can save you money on interest charges that credit cards (and other high-interest debt) can rack up. Consolidating your debt can also serve to act as a fresh start to rebuilding your credit and financial confidence.
2. Special occasions: Pay for a wedding or finally take that vacation.
While it may seem like overkill to take out a personal loan to pay for events like weddings or vacations, it is an option worth exploring. If you have a voluntary expense coming up, a personal loan might save you some money in interest instead of paying with a credit card.
3. Bridge Loan: Bridge loan for temporary cash shortfalls.
If you are in a temporary pinch and need cash fast, a personal loan can serve as a temporary bridge until your regular funding comes through. For example, if you know you’ll be receiving money in a month, but need to pay for something that is time-sensitive, a personal loan will allow you to have the cash on hand that you need, and then you can immediately pay off the loan when your money comes in (plus any interest fees, of course).
4. Expenses: Home upgrades, emergency auto repair or medical bills.
Things have a tendency to go wrong at the most inopportune times, especially when it comes to your car or home…and those repairs can be expensive. Having to make emergency repairs can be extremely expensive and stressful, especially when you don’t have an emergency savings fund to pay for such unexpected expenses. In the case of auto and home repairs, there are plenty of things that aren’t covered by insurance policies and warranties. Rather than having to take out a home equity loan (or an auto title loan), a personal loan can be used to pay for these expenses, then paid back as your budget allows.
Certain home upgrades can save you money in power bills in the long run, and personal loans can be used to finance those items, as well.
Even if you have a medical procedure that you’ve been putting off that needs to be paid for up front, a personal loan can get you the money you need.
5. Anything you want: Making other purchases that you’ve been holding off.
Sometimes we all just want to treat ourselves to something nice, and haven’t saved up enough to buy it outright. Depending on interest rates and fees (beginning to notice a pattern here?), a personal loan might be more cost effective in the long-term than paying for items with a credit card. While it is never wise to rack up debt for “unnecessary” items, it is possible to responsibly finance these things with rates lower than a credit card.
All loans are not created equal.
When you are considering making a substantial purchase or making a necessary repair to your car or home, carefully weigh your options for payment. A little bit can go a long way when it comes to interest rates, so it’ll benefit you to have the lowest rates and origination fees as possible. Before you whip out your credit card and swipe away, make sure that you wouldn’t be better served by taking out a personal loan to pay for these goods and services. Consult a trusted personal loan advisor, like those at LoanMe, for more information on how a personal loan can potentially benefit you in an upcoming purchase with low monthly payments and no prepayment penalties.