If you’ve been doing research while considering applying for a loan, you’ve likely discovered that the subject is pretty confusing. There are many varieties of loans, lenders, regulations, and more, and by the end of your search you are likely more confused than you were at the start.
One popular loan type you may have seen is called a “personal loan.” In this guide, we will explain to you how these loans work, what they can be used for, and the benefits of taking out a personal loan.
What Is a Personal Loan?
Personal loans are a fairly open form of lending that can be used for a variety of purposes Typically, they will have a set term length, fixed interest rate, and a strictly scheduled payment plan.
Unlike payday, signature, and other short-term loans, personal loans are great for consolidating on debt and making large purchases. This is because they allow you to pay overtime with better interest rates and some lenders will even allow you to use collateral to lower your payments.
What Are Good Reasons for a Personal Loan?
There are a variety of reasons you may need a personal loan. many people get them to lower their interest rate on existing debt.
They are also a popular choice for those looking to make large purchases. This is because the interest rates and term length tend to be longer than that of a credit card. Additionally, personal loans can often be issued to those with poor credit so long as there is a good cosigner on the account.
Even with all the benefits of taking out a personal loan, it is important to practice responsible spending as to not increase your overall debt. With that in mind, here are eight great reasons to take out a personal loan.
1. Vehicle Repairs and Purchases
One of the benefits of taking out a personal loan is the ability to quickly resolve expensive issues, like car trouble. Cars are an expensive and often necessary piece of equipment and even used auto body parts can cost an arm and leg.
Using a personal loan to afford repairing your vehicle can get you back on the road quickly.
Personal loans can also assist in the purchase or refinance of a vehicle. Purchasing a car with the funds of a personal loan can create a more secure purchase. This is because auto loans require using the purchased vehicle as collateral. This means that defaulting on the loan leads to the repossession of the vehicle.
If you purchase a car with a personal loan, you don’t have to worry about a lien on the vehicle’s title or requirements for more expensive insurance.
2. Repairing Your Home
Home repairs are another area that can get expensive quickly. Many homeowners choose to cover sudden home expenses with a personal loan because ignoring damage while you save up money can lead to even more extensive damage.
The best way to handle applying for a personal loan to repair your house is to get a quote from a repair professional, like a plumbing contractor, to see just how much you will need from the lender.
Personal loans are also useful for home renovations and improvements. Some improvements, like adding a deck or remodeling your kitchen, have such a high ROI that they practically pay off the loan by increasing the value to your home.
3. Handling Health Issues
Health insurance in the United States is extremely expensive, and a hospital trip without it is even worse. If you have suddenly fallen ill, you may need over a thousand dollars just to get a hospital bed.
One of the benefits of a personal loan is they can help support you through sudden illness or injury. Whether you need some funds to pay for your treatment or money to support yourself while you recover, a personal loan can help.
4. Paying a Bond
If you or someone you love get in trouble with the law, you may need funds to cover a bailbond, or the money paid to the court to allow an arrested person to go free until their court date.
One benefit of taking out a personal loan is they have lower interest rates than the loans made through a bail bondsman, which can keep you from accruing a payment you can’t afford.
Your wedding should be the most beautiful day of your life. After all, it is an expression of commitment and love. However, weddings are also one of the most expensive parties a person can throw.
There are all sorts of ways to save money on your wedding, but you shouldn’t have to miss out on the details you truly desire. From a custom wedding ring to a grandiose cake, a personal loan can help make your day that much more special.
The benefits of taking out a personal loan are vast, but one is that once you have your funds, you are free to spend them as you please. So, if you take out the loan for your wedding dress but then decide you’d rather elope, you suddenly have extra money for an amazing honeymoon.
6. Securing Legal Counsel
Attorneys are highly trained professionals who worked to secure your rights and interests, which is why they are so pricey. Attorney fees cost anywhere from $100 to $300 on average. More specialized lawyers like an auto accident lawyer or family law attorney may cost even more.
If you are facing a legal battle, custody proceeding, or divorce, you may realize that a lawyer is less of an option and more of a necessity. So, what do you do when you don’t have thousands of dollars to spend on legal counsel?
Answer those tough questions is one of the benefits of taking out a personal loan. A lender can provide you with the money necessary to secure your counsel and, if the case allows it, you may be able to request the opposing party have to repay your lawyer fees.
If your attorney fees are paid by the opposing party, you can quickly repay your loan and save money on interest.
7. Cosmetic Dentistry
From teeth whitening to braces and veneers, there are dozens of cosmetic dentistry procedures that aren’t covered by insurance. Though dentists agree that many cosmetic procedures are essential to quality of life, insurance providers don’t seem care.
Personal loans; however, are unbiased about why you need your dental procedures. The ability to use your funds for virtually any purpose is one of the biggest benefits of taking out a personal loan. Once you have received your funds, you no longer have to let your insurance provider keep your from getting the medical procedures you want or need.
8. Cosmetic Surgery
You may think that taking out a personal loan for cosmetic surgery is irresponsible, but you are mistaken. Cosmetic surgery isn’t always facelifts and tummy tucks. No, often cosmetic surgery is needed to help those who have suffered from extreme facial injuries or malformations.
Many facial surgeries can cost upwards of thousands of dollars. If you are dealing with the need for maxillofacial surgery, you might want to consider taking out a personal loan to cover the cost.
9. Funeral Expenses
Facing the death of a loved on is a devastating life event. Planning for a burial site, obituary, funeral program, and appropriate decor are likely the last things you want to think about, but it must be done.
One way you can ease your burden is to find a way to know you have funeral expenses covered. This is where a personal loan can help you.
Covering the total cost of a funeral and burial with a personal loan is a wise choice that can keep you from accumulating multiple payments to different companies and lenders. The funeral home can help you determine the total amount you will need before submitting your application.
Luckily, many lenders can get your approved within 24 hours so you can get your money when you need it.
10. Debt Consolidation
Debt consolidation is one of the most popular reasons for taking out a personal loan.
The funds from the loan can be used to pay off credit cards, medical bills, or other types of debt. Then, you will have a single monthly payment with a more manageable interest rate in exchange for the multiple payments you were previously tied to.
Consolidating debt may not always be the right choice. Take a look at the interest rates on your current debt and calculate whether or not consolidating your debt will save you money.
Consolidation can be especially helpful if you have multiple credit cards with payments that are spread out all across the month. Making one payment a month can prevent missed payments that come with hefty fees.
Frequently Asked Questions
Now that you have some ideas of how you might use your funds, take a look at some common questions on personal loans.
1. Who Can Get a Personal Loan?
Most legal citizens over the age of 18 can apply for a personal loan. Approval will depend on credit history, employment, residency, and other regulations set by the lending institution of your choice.
2. How Are Interest Rates Determined?
Interest rates are calculated based on the risk a lender is taking by lending to you. So, if you have great credit and wonderful repayment history, your interest rate will be lower. While great credit can lower an interest rate, it will never zero it out. That’s because interest is necessary for the lender to make money off your loan.
3. Does My Credit Score Matter?
Your credit score is a history of how you have handled loans, credit cards, and other payments in the past. This history is used to calculate a credit score that tells lenders how likely your are to default on your loan. This is necessary for lenders to assess the risk level of lending money to an individual.
4. Can I Use a Personal Loan for My Business?
Depending on why you need the money, a personal loan can help you cover business expenses. However, if you aren’t certain about your need for a loan or need more than a personal loan can cover, you may need additional guidance.
Try reaching out to a banker with an investment banking license for advice on the best possible options.
5. How Much Money Can I Take Out?
The amount you can take varies based on the lender. One of the greatest benefits of taking out a personal loan is the options to cover the amount you need. Most institutions offer personal loans from $2,000 to $50,000, but some lenders will allow loans up to $100,000.
6. How Long Does it Take to Get Approved?
One of the best benefits of taking out a personal loan is the application process is often extremely quick. Many lenders can get you an answer within an hour and immediately issue your funds. The approval process may be delayed if the proper paperwork hasn’t been submitted with the application.
7. What Kind of Documents Do I Need?
The requirements for documentation will vary based on the lender. Typically, lenders will ask for the following:
- Government-Issued Photo ID: drivers license, passport, etc.
- Proof of Active Bank Account: void check with account information.
- Proof of Residence: a utility bill, lease, or deed with your name and address.
- Completed Application: Fill out the entire application. If you don’t know how to complete a section, call the lender and inquire.
- Proof of Income: pay stubs, tax return, bank statements.
Is a Personal Loan Right for You?
When it comes down to it, those who need some help making a purchase or repairing their debt should definitely consider a personal loan. The rates and lending terms are often considered very fair and can even be negotiable.
Perhaps one of the greatest benefits of taking out a personal loan is how easily it can help pull you out of a difficult spot in your life. Whether you are having a medical crisis or need to consolidate debt to lower your monthly burden, your loan might be exactly what your need to get over life’s speed bumps.
So, if you are in need of a little financial boost, consider the benefits of taking out a personal loan.