In an ideal world, we would all have enough money to pay for life's unexpected surprises. Unfortunately, that is not always the case. If unforeseen expenses come up (and they usually do), a personal loan can help you meet your financial obligations.
Personal loans range anywhere from $1,000 to $50,000, depending on your credit score and reason for taking out the loan. These loans are unsecured, which means you don't put up any collateral. Instead, lenders rely on your financial history. When you apply for a loan, creditors examine your credit score and your debt-to-income ratio.
While debt seems scary, if well managed, it is not a bad thing and can help you improve your credit score. Here are few situations where a personal loan might be helpful for you:
1. Pay Medical Bills
Outstanding medical bills can quickly demolish even the best credit score. If you had an unexpected medical emergency, a personal loan can help you repay your medical provider before your bill is sent to collections. Instead of leaving these bills unpaid, you can get a personal loan and pay off your medical bills at once. Then, you can pay back your loan over a set amount of time while protecting and building your credit score.
2. Consolidate Credit Card Debt
If you are making monthly payments on multiple credit cards, a personal loan can help you consolidate all of those payments into one monthly payment that could save you money in the long run. Many credit cards have high interest rates, which add up over time. If you have good credit, you can typically get a personal loan at a much lower interest rate. Even though the principle you pay will remain the same, you pay less in interest over time.
3. Cover Unexpected Expenses
Some things are hard to plan for, like a broken down car or fridge. Even you have enough money in savings, paying for these unexpected expenses with a personal loan could be your best choice. When you take out a personal loan to cover these expenses, you help build your credit score and protect your financial nest egg.
4. Help with Moving Expenses
Moving, whether across the country or just across town, comes with both planned and hidden expenses. A personal loan can help you cover these expenses. It is best to make a moving budget before you take out any loans. Having a budget allows you to account for known expenses, like deposits and a moving van, while giving yourself wiggle room for unexpected expenses, like cleaning fees for the home or apartment you are vacating.
5. Give Your Home an Update
Keeping your home in good shape is both a short- and long-term investment. It ensures that you can enjoy your home while you are in it and you can possibly net a higher price for it when you move. You can take out a personal loan to cover home improvement projects like a fresh coat of paint or a new deck before the summer barbeque season.
6. Replace Old Appliances
Old, clunky appliances cost money every month. They guzzle more water and electricity than their newer counterparts. By investing in new, energy-efficient appliances, you do yourself and the environment a favor. Some states offer rebates when you purchase new appliances and recycle your old ones. These rebates can instantly be applied to your loan.
When Is Not a Good Idea to Get a Personal Loan?
There are times when getting a personal loan is not your best option. Since taking on debt is a big commitment, it is vital that you always carefully plan your financial pathway. Here are two examples of when planning ahead and saving is a better option than seeking a loan:
1. Cover a Last Minute Vacation
It might be tempting to take out a quick loan for a vacation. However, it's best to plan ahead for large, discretional expenses like trips. Practice setting aside money every month. While it might take time to achieve your goal, you will be pleasantly reminded of what you are saving for each time you make a deposit. Even better, you will not have to worry about paying off your loan long after your trip is over.
2. Pay for Daily Expenses
If you find yourself relying on loans to cover basic expenses, such as food and rent, or as an excuse to not plan ahead or save, consider reevaluating your budget or meeting with a financial specialist.
When you decide to get a loan, make sure it works with your budget and lifestyle. Take time to compare rates from different lenders and carefully read the fine print. To learn more about these loans, read our articles on personal loans.