By: Raymond James
About the Author:
Ray is a sought after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.
A personal loan can be virtually any type of loan or line of credit that you need to repay down the road. The loan could be offered by a bank, an online lender, or any other number of licensed consumer finance groups. There are so many reasons why consumers use personal loans, but these top ten reasons are primarily why they do so.
1. To Buy Now And Pay Later For Basic Items
Some forms of consumer loans like credit cards, are used because they’re far more convenient for buying basic items than using cash or even debit cards. If you get paid once every two weeks but need to buy groceries or other household items in the meantime, a personal loan you can use for that could come in handy. You do need to keep a budget to make sure you don’t run up credit card or personal loan debt doing this.
2. To Buy A Big Ticket Item
Some items need a large personal loan in order to pay for, especially a new house and often a vehicle. Even a few other items such as expensive appliances can sometimes require financing in order to purchase. Usually using a personal loan to buy a big ticket item is better if that item appreciates as opposed to depreciating.
3. To Upgrade Or Remodel A Home
Sometimes homeowners who have either paid off their home, or have substantial equity in it will take out a personal loan, like a home equity loan to pay for upgrades. Not only can this help with upkeep and major maintenance costs, but doing so can greatly improve the value of a home. Hence, a home improvement loan can prove to bring a return on investment in the long-term if you use it right.
4. To Build Credit
Since most loans and credit cards you use will be tracked by credit bureaus, and thereby attach a credit score to your name, you always need to make sure your credit looks good. For some people, they prefer to use a small personal loan to try and improve their credit or even build it from scratch. One way this can be done is through using a secured credit card.
5. To Consolidate Debt
Sometimes too many loans, credit cards or other bills can be too much to handle at once. So it can make sense sometimes to use one big loan to pay off all your outstanding debt, and then pay that loan off in reasonable monthly payments. This is known as debt consolidation. It’s always wise to make sure a debt consolidation personal loan has a lower interest rate than your current outstanding debt.
6. To Refinance An Existing Loan
Loan refinancing is a little similar to debt consolidation, but it’s main purpose is just to pay off one loan sooner. Often when consumers apply for a mortgage or auto loan, they’ll lock in a fixed interest rate for the entire duration of the loan. Refinancing could give them the option to get a new loan with lower interest rates, or even for a shorter term so they can pay off the loan quicker with no early payment penalty.
7. To Start A Business
You might assume starting a business would entail using a business loan. But often most startup businesses don’t qualify for one, so new business owners will often turn to financing from their own loans including credit cards or home equity. But usually once the business is started, a business bank account will then be opened.
8. To Pay For Short-term Emergencies
Life can always throw unexpected surprises at you such as emergency room visits, car engine failures, and sudden family emergencies. A personal loan that can be approved quickly can serve as a great way to get funds to cover these expenses if you’re short on savings. You do need to be careful that you don’t take out a short-term loan for these purposes from a predatory lender.
9. For Long-distance Business Or Leisure Trips
Sometimes paying for long-distance trips through a personal loan can be good, especially if it can give you a discount for the trip. For example, some credit cards offer frequent flyer miles or discounts on hotel rooms or car rentals. But repaying the cost of the trip can be a major downside since most people will put it off letting interest payments build up.
10. For Other Various Events
Some events such as going to college or paying for a wedding may also be ideal for using a personal loan. Achieving a higher education or starting a family are two events that open up many other opportunities, and therefore can be worth using a personal loan for.