A personal loan is the most popular method of obtaining fast cash today. Over 26% of Americans prefer it over credit cards, lines of credit, home equity loans, and the like. However, 20% of Americans don’t even realize they can borrow money with this loan type.
You can apply for and use a personal loan in many circumstances. But when you do, you must ensure that you only apply for it when you truly need it, such as:
Emergency Situations
There will be times when we’ll face emergencies, and a personal loan is a great way to get extra funds to handle such situations.
Many personal loan lenders are lenient when it comes to your credit score. Hence, even if your score is less than stellar, you can still get a loan with bad credit.
There are many options for you, like a secured personal loan. This type of loan is backed by collateral, such as a vehicle or a property. However, take note that if you fail to pay your loan, the collateral becomes the payment for your loan.
Credit Card Debt Consolidation
Another circumstance in which you should resort to a personal loan is consolidating your credit card debts. Most Americans use credit cards for their daily expenses; however, not all consumers have the resources or spending patterns necessary to make credit cards an asset rather than a liability.
One of the disadvantages of credit cards is the risk of overspending and their high-interest rates. These elements can cause cardholders to be drowned by debt.
These factors together can prevent many individuals from repaying their credit card debt. Debt consolidation is also the most common reason why people acquire a loan. Personal loans have a lower interest rate than credit cards. So, paying a personal loan can be lower than repaying your credit card, especially if you have a good credit score.
Increasing Your Credit Score
If you want to improve your credit score, acquiring a personal loan can help you. However, you must ensure that you repay your loan on time to ensure that it positively impacts your credit score.
Otherwise, you will only put your credit rating at risk. Including a personal loan to your “credit mix” can boost your score if your credit record primarily shows credit card debt. Having a variety of loans and demonstrating your ability to manage them responsibly are positive factors.
However, taking out a loan that you don’t genuinely need in the hopes of raising your credit score is a risky move. Instead, it’s better to continue paying all your other bills on schedule and keep your credit usage ratio low.
Home Repairs
Having a comfortable home to live in is among the basic needs of humans. Therefore, acquiring a personal loan is reasonable if you need extra cash to pay home repair expenses. Taking a personal loan for paying any home improvements and repairs is a great option other than taking a home equity loan to pay for home repairs.
Both home equity loans and lines of credit are excellent options to acquire for home repair projects. However, these loan options will require you to make your home collateral. Also, remember that COVID-19 has caused several lenders to tighten their HELOC lending criteria.
A personal loan is a good alternative if you don’t want to take the chance of losing your property in case you can’t keep up with your repayments. Obtaining a personal loan rather than a home equity loan may be quicker.
Moving Expenses
A local relocation typically costs $1,250, whereas a long-distance relocation costs around $4,890. You can get a personal loan to cover your moving costs if you lack the funds available. A personal loan can move your things from one location to the other, buy new furnishings, ship your vehicle between countries, and pay for any additional costs.
If you’re moving somewhere and don’t have a job, using a personal loan for relocation expenses can also assist you in staying afloat. By doing this, you can keep from using your emergency fund or savings.
Get A Personal Loan Responsibly
Acquiring a personal loan shouldn’t be taken for unnecessary reasons. You should only apply for a personal loan for reasonable purposes. So, check out the above-mentioned circumstances and see when you should take a personal loan.