Personal loans are borrowed money that can be used for large purchases, debt consolidation, emergency expenses and much more. These loans are paid back in monthly installments over the course of typically two to six years, but it can take longer depending on your circumstances and how diligent you are with making payments.
Here are the top nine reasons to get a personal loan and when they make sense:
- Debt consolidation.
- Alternative to a payday loan.
- Home remodeling.
- Moving costs.
- Emergency expenses.
- Appliance purchases.
- Vehicle financing.
- Wedding expenses.
- Vacation costs.
Get Prequalified for a Personal Loan
Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.
How personal loans work
After you’re approved for a personal loan, the funds you receive will be deposited into your bank account in a lump sum. The transfer may take as a little as 24 hours or as long as a few weeks, depending on the lender. You’ll have to start making monthly payments as soon as the loan is disbursed.
Most personal loans have fixed interest rates, which means that your payments will stay the same every month. Personal loans are also typically unsecured, meaning there’s no collateral behind the loan. If you don’t qualify for an unsecured personal loan, you may have to use collateral to be approved, like a savings account or certificate of deposit. You can also ask a friend or family member to co-sign on your personal loan to help you get approved.
9 reasons to get a personal loan
While it’s always important to carefully consider your financial situation before taking on a loan, sometimes a personal loan is the best way to finance a large purchase or project that you can’t afford upfront. Here are the top nine reasons to get a personal loan.
1. Debt consolidation
Debt consolidation is one of the most common reasons for taking out a personal loan. When you apply for a loan and use it to pay off multiple other loans or credit cards, you’re combining all of those outstanding balances into one monthly payment. This grouping of debt makes it easier to work out a time frame to pay off your balances without getting overwhelmed.
One of the best advantages of using a personal loan to pay off your credit cards is the lower interest rates. With lower rates, you can reduce the amount of interest you pay and the amount of time it takes to pay off the debt. Consolidation allows you to pay off credit cards in finite terms with a clear end date in sight.
Who this benefits most: Those with multiple sources of high-interest debt.
Takeaway: Using a personal loan to pay off high-interest debt, like credit card debt, allows you to consolidate multiple payments into a single payment with a lower interest rate.