When Is It A Good Idea To Get A Personal Loan?

Need money ? In many scenarios, a personal loan could be your best

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If you’re running out of money to cover a short-term goal or a sudden emergency, a personal loan may be just what you need.

Personal loans are among the most versatile financial products available because, unlike a mortgage or car loan, they can be used to pay just about anything.

They can also save you more money in the long run than other borrowing options, like credit cards.

Here’s a quick overview of how personal loans work and some examples of when you should get one.

How a personal loan works

When you take out a personal loan, you borrow a sum of money that you agree to repay in full over a fixed period. You will also pay a certain amount of interest during this period, but usually much less than you would have with a credit card or payday loan.

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Personal loans are generally unsecured, which means you won’t have to post collateral like your house or car to get one.

However, since your lender cannot foreclose any of your assets if you don’t repay your loan, unsecured personal loans often come with higher interest rates than secured loans, which require collateral.

In order to benefit from the best interest rates on a personal loan, you will need to have a solid credit rating. In general, the better your score, the less interest you will pay on your loan.

That said, free services like SmarterLoans can present you with competitive offers regardless of the shape of your credit score. Interest rates start at an APR of 9.9%.

Smart uses for a personal loan

Here are some scenarios in which you might want to use a personal loan:

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  • Consolidate your debt. If you’re bogged down by multiple high-interest credit card bills, you can use a personal loan to immediately pay off your outstanding balances. Going forward, you’ll make a one-time monthly payment at a lower interest rate and have a clear end date in sight. Depending on how much interest you are currently paying, consolidating your credit cards could save you thousands of dollars and help you get rid of your debt years earlier.
  • Pay for emergency expenses. Life has a way of throwing curved balls at you when you least expect it. A low-interest personal loan can help you minimize the cost of an emergency when you need cash quickly, especially if you know exactly how much you need. Whether your car has broken down, your refrigerator has broken down, or your pet needs surgery, covering it with a personal loan will help you avoid the exorbitant cost of credit card debt.
  • Avoid payday loans. These super short term loans might seem handy when you just need to hit your next paycheck, but they charge ridiculously high interest rates, sometimes over 400%. Even if you have bad credit, a personal loan is generally a more profitable option than a payday loan. Plus, you can take much longer to pay off the money you borrow, since most personal loan terms range from a few months to several years.
  • Cover your moving expenses. Packing everything, renting a truck, replacing old furniture – it can really add up, especially if you are moving to a new city. You might also need extra money to cover your first and last month’s rent or your security deposit. It’s a lot to handle at one time, but a personal loan will allow you to spread the cost over a comfortable period at minimal cost.
  • Renovate your home. Many homeowners use a home equity line of credit for repairs and improvements because they can borrow additional money as needed and use their equity to access low interest rates. But personal loans are a solid alternative if you don’t have a lot of equity in your home or feel uncomfortable putting your home as collateral. Plus, personal loans generally take less time to process – SmarterLoans can get you pre-approved in just three minutes.

This article was created by Wise Publishing. Wise is dedicated to providing information that helps readers navigate the complex landscape of personal finance. Wise only associates with brands that he trusts and that he believes can be of use to the reader. This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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