Personal loans can help you out when you need to borrow money for a variety of reasons. This type of lump-sum loan is paid back in monthly installments over a set term, usually ranging from one to seven years.
With any debt, it’s essential to consider how the payment will impact your finances, but there are many situations where a personal loan may be a good choice.
Just like it sounds, a personal loan can be used for personal reasons. Qualifying for a personal loan depends on several factors, including your creditworthiness. The stronger your credit score, the more likely you are to be approved.
A higher credit score can also translate to a lower interest rate on a personal loan. Personal loan lenders can also take into account things like:
- Your income
- Total monthly debt payments
- Whether you rent or own your home
1. Debt consolidation
If you have several outstanding loans with high-interest rates, combining them into one can help you reduce your monthly payment. This is called “debt consolidation,” and it’s one of the most common reasons people take out a personal loan. The personal loan often has a lower interest rate than some of the other debts you may have, which can reduce the total amount you will repay over its term.
Be careful if you use a personal loan to pay off credit card balances. One pitfall could be being tempted to charge new debt on those cards. You’ll need to practice self-control, or you could find yourself worse off than before you consolidated your debt.
2. Cover emergency expenses
A personal loan has a fully-funded emergency account, which covers three to six months of expenses. If something arises, you may need to resort to getting a personal loan. Emergency expenses could consist of unplanned medical fees, expensive car repairs, or even funeral costs. Any of these situations can quickly add up to a few thousand or even more. Even if you have insurance, in some cases you may have to meet a high deductible. A personal loan could help in these situations, which are often stressful.
Related Article: Tips on how to repay the loan on time
3. Make a big purchase
A personal loan could also finance a big purchase, such as a new appliance, car or engagement ring. You can also use it to pay for tuition, a wedding, or a vacation. In these cases, though, it’s best to consider your needs versus your wants. Buying a car can help you get to work. Paying for tuition can help you improve your career outlook. And replacing a defunct 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 comfortably fits your budget. And shop around for the best deal on that large purchase, so you aren’t tempted to get a loan for more than you need.
4. Pay for moving costs
If you’re moving due to a new job or family situation, taking out a personal loan may help you pay for the expenses. You may also need to purchase new furniture or household goods for your new home or pay for travel expenses. Before you take on debt to make a move, make sure that your new income will be enough to cover the monthly loan payment.
5. Remodeling a home
Remodeling your home can increase its value as well as make necessary repairs that protect your investment. A personal loan is one option for getting the funding 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 go with a home equity line of credit or home equity loan. However, personal loans could be a good choice since they don’t require collateral, which means you don’t put your home at risk if you’re unable to repay.
6. Start a small business
As the saying goes, “It takes money to make money.” A personal loan can be a good vehicle for getting the funding you need to start your own company. You can use it to hire a website designer, order initial inventory, pay your rent, or cover payroll until you start generating revenue. Make sure your business plan includes a way to make your monthly payments while you’re getting your business off the ground.
7. CIBIL Score Improvement
The CIBIL score of an individual is calculated on the basis of agility in payment of loan repayments and credit card repayment. When you take a personal loan of the loan amount and return it within the fixed time frame, you can improve your CIBIL score as it will improve your credit history and grow your creditworthiness. This also enhances the possibilities of the approved personal loan. Apply for a Personal Loan get a higher loan amount up to 30 lakhs at an attractive rate.
8. Higher education
While you may have prioritized your child’s career aspirations and making regular savings towards it, the ever-increasing education costs may cause some deficit towards such financial goals. One can take a personal loan to bridge such a deficit and enable their child to get admission into the desired college and stream, not allowing any financial constraints to alter such goals.
9. To Pay for long-distance relocations
Relocation within the city itself is an expensive affair. So naturally, when you move from one city to another, a lot of money is involved. You can always consider taking this loan to cover those expenses.
A personal loan could be more of use when there is little possibility for any other type of loans like housing loans, vehicle loans, etc. Personal loans are becoming more popular due to quick disbursal and low documentation. However, the interest rates would be on the higher side due to the lower payback period. In case of liquidity crunch or quick demand for money, personal loans are saviours.