When you think of a personal loan, your mind might go directly to payday loans. You might remember those commercials that say, “Get cash fast!” Yes, payday loans are a type of personal loans. What you may not know is there are other personal loans. Personal loans are available through banks, credit unions, and online lenders and offer much lower interest rates than payday loans.
A personal loan acts more like an auto or home loan. The loans are unsecured, with fixed interest rates, and monthly installments. This means you do not have to put up collateral to apply for the loan and the monthly payments stay the same. Instead of having a week to pay back the payday loan, you could have up to five years with a personal loan.
There are a variety of reasons you may feel you need to apply for a personal loan. Here some common reasons customers consider a personal loan.
Large Purchases
There comes a time when you need new furniture. Maybe your TV broke, or your family cannot fit around the dining room table anymore. Perhaps you want to start making family memories by camping in a trailer or with a boat on the nearby lake. These could be reasons to consider a personal loan to help with these purchases.
Home Improvements
If you want to upgrade or add on to your current home, a personal loan can help make it a reality. These improvements can include a new roof, new carpet and flooring, and new appliances. You can apply for a personal loan to redo kitchens, add square footage, and improve landscaping. Check with the lender to make sure your needs are eligible to use a personal loan.
Debt Consolidation
One way to utilize personal loans is through debt consolidation. You apply for a personal loan in the amount necessary to pay off the debts you want. These debts typically include medical bills or credit card debt. Once you receive the money from the personal loan, you pay off those debts. Then, you only have one monthly payment to your personal loan lender. The interest rates for personal loans may also be less than credit card rates.
Investments
Sometimes an investment opportunity presents itself. It seems the investment will pay off in the long run. Some people use a personal loan to make the initial investment. The interest they earn off the investment could be higher than the interest they would have to pay on the loan.
Life Events
We cannot always be financially prepared for what life brings. We know we should start saving for our kid's future at a young age, but then a car needs to be fixed, depleting the money. A personal loan is one way to help cover such life events. These events can include weddings, the birth of children, graduations, or even funerals. Your personal loan interest rates may be lower than it would be to pay for these events with a credit card.
New Businesses
Some banks and credit unions offer personal loans to help you start a new business. The stipulations may vary depending on the lender.
Travel
Your dream of backpacking across Europe or taking your grandchildren to Disneyland may not seem realistic. Your current financial situation may not make these dreams a possibility. This could be one way a personal loan could benefit you. Customers apply for a personal loan to then use the money to cover their travel costs.
Emergencies
We know we should have a special account full of money set aside to cover emergencies. While that is a great tip, it is easier said than done. Sometimes the emergencies tend to roll in like a thunderstorm and dump. Applying for a personal loan to cover those costs is one use. Payday loans have much higher interest rates and must be paid back within a couple of weeks. Personal loans offer better interest rates with longer loan term lengths. This allows you to make payments that fit inside your monthly income and budget.
Moving Expenses
Moving to a new city or state can easily cost $5,000. Some are fortunate to have their employer pay for part, or all, of the moving costs. If you are not that lucky, the cost can be overwhelming. You can apply for a personal loan from most lenders to help cover the cost of moving.
Tax Debts
If you are late on your tax payments, the balance can weigh on your mind. You may not have the funds to cover the debts owed. With a personal loan, you can get the tax debt paid off and instead make payments to your personal loan lender. Making the monthly payments may be easier than making a one-time lump sum payment.
Repaying Relatives
Borrowing money from relatives or friends can be tricky. To avoid straining the relationship as you try to pay back the money, people use a personal loan. With a personal loan, you can pay back your debts to your friends. You then make the monthly payments to your personal loan lender instead.
Holidays
No matter how well we prepare, Christmas always seems to sneak up on us or end up costing way more than you expect. If your child asks for something you cannot afford, you may consider looking into a personal loan. With loan amounts ranging from $1,000 to $100,000, you could have the Christmas you want.
Personal Loans are not Available for Everything
Most lenders do not allow you to apply for a personal loan to make a down payment on a home. There are also restrictions when it comes to secondary education. You cannot apply for a personal loan to cover college tuition. Some lenders may allow you to use the money to cover housing or living expenses. You will need to check with the specific lender to see what they allow. To cover tuition requires a student loan.
Always Remember
As with all loans, it is not free money. The money must be paid back, plus the interest. Do not apply for loans just to "Keep up with the Joneses."
As always, saving up and paying for these things with money you have is always the best option. If you have a legitimate reason to apply for a personal loan, apply for an amount you can fully pay back in the set amount of time. Let EQLender help you find the best personal lender for your financial needs.