Personal loans are some of the most common type of loans applied for in the financial market. People apply for this loan for various reasons. But the most common ones are the following:
# 1 – To consolidate debts
If you are having a hard time keeping up with several debts, one solution that you might want to consider is debt consolidation. Debt consolidation refers to a type of debt refinancing that combines two more debts into one single loan so that you only have to make one monthly payment.
This method benefits the borrower in more ways than one. Not only is it more convenient to make a single payment instead of many, the borrower can also enjoy lower interest rates. It’s also easier to plan financially, and determine how long you will have to endure before you resolve your debts.
But of course, you need first to decide if debt consolidation is the best option as there are alternatives that you can consider such as a balance transfer credit card. You need to consider your credit score as well as figure out which option will be cheapest for you.
# 2 – To cover medical expenses
Even if you take on a healthy diet and exercise regularly, it is still possible for you to get sick from time to time. When this happens, you will need to rely on your medical insurance or your emergency funds to cover your medical expenses. However, your insurance policy might not cover all your expenses, or you might not have one at all. If that is the case, one of the alternatives that you might want to tap into is a personal loan.
You have to make sure, however, that you talk with your loan provider to find out if there is a suitable payment plan for you. This way, you will be able to pay for your medical expenses without burying yourself deep into debt.
# 3 – To buy a car
Another common reason people take on a personal loan is to buy a car. Now before you apply for this type of loan because you badly need to purchase a car, you must first consider what type of car you are thinking of buying and how much this car costs.
While you will probably be able to secure a better interest rate with a car loan since personal loans are not secured by collateral, you would want to take on a personal loan if you are buying an older model or a secondhand car.
# 4 – To renovate your home
Most people make use of home equity loan or home equity line of credit to renovate or improve their home. The problem is, not everyone is eligible to take on these types of financing. If you are unable to secure a home equity loan, you would want to consider using a personal loan instead.
Not only will this give you the funds that you need to make your house better, whether it involves redesigning of the interiors or repairing structural defects, it also makes you feel safer as there is no risk of losing your home in case you fall behind the payments. Again, this is because a personal loan is unsecured and will not use your property as security.
# 5 – To move to a new home
If you are not renovating your home, but you are thinking of moving to a new place, a personal loan can also help you cover the expenses. But first, make an effort to calculate all the expenses that the moving will entail, and figure out if a personal loan (considering the interest rate and other costs) is the best option for you.
# 6 – To open a new business
Personal loans are not commonly used for business purposes. Most experts recommend separating business credit from personal credit. However, there are some cases wherein the personal loan is more beneficial than a business loan.
Here is one example: you have just opened up your small business and you are not yet eligible to take on a business loan. If this is the case, a personal loan is what you need to get things started.
# 7 – To cover emergency expenses
An emergency expense may arise anytime. If you do not have an emergency fund, you can use a personal loan to cover it. Again, you need to consider the interest rate and other costs to determine if this is the most suitable option for you or if you should look for other solutions.
A personal loan can be used for various purposes. But as with any other type of loan, this one also comes with certain risks so it is a must to study your situation carefully so you do not get yourself into deep financial trouble.