If you’re like many people, you might prefer not to take on any debt. But despite your best efforts, there are probably circumstances when it’s your only option. When you find yourself in such situations, you’d want to ensure you opt for the best way to borrow. One of the popular choices that are easy to qualify for is personal loans. But is it right for you?
Personal loans come in many forms. But generally, they are a lump sum you can borrow from a bank or financial institution. You have to pay it back plus interest over a predetermined period. The term can vary from every lender, but it can be as short as six months to as long as ten years.
Most lenders don’t have restrictions on how you will use a personal loan. While you can use a personal loan for any purpose, it may not always be the best option. To help you figure out if it’s ideal for you, here are the six most appropriate ways to use a personal loan.
Consolidate Debts
Are you carrying high-interest rates on multiple debts? Using a personal loan to consolidate these debts would be a good idea. Instead of paying different interests on multiple credit cards or loans, you can lower your interest rates on a single monthly payment. This can help you save money in the long run.
But while paying your debts this way can be much cheaper and more manageable, it may not always be the case for everyone. Make sure to understand that the loan terms and the new interest rate are better than the combined rates of your existing debts. Shop around and look for lenders with no origination fees as much as possible.
Improve Your Credit Score
A personal loan can be a great tool to improve your credit score if you use it responsibly. Note that several factors influence your credit score, and the biggest one is payment history. By making prompt and on-time payments on your personal loan, you’ll establish a positive payment history.
Having varying types of credit also contributes to your credit score. If you already have a credit card and mortgage on your credit file, taking out a personal loan can boost your credit mix and help your credit score. But this can also bring more harm than good if you can’t pay the loan on time. If improving your credit score is the goal, ensure that you can afford the personal loan.
Cover Emergency Expenses
Emergency expenses can happen now and then. Unless you have savings or an emergency fund, having access to financing might be your only choice. It can be stressful to encounter a sudden medical bill, car repair, or other urgent expenses you didn’t expect.
Luckily for you, personal loans are designed for various purposes. They can be the most convenient option you can go to whenever financial emergencies occur. In most cases, you only have to fill out an application, and you can get the money within 24 hours or a few days once you’re approved.
Personal loans are accessible almost anywhere. So, for example, if you’re in Chicago and encounter an emergency expense, you can surely find a Lender of Chicago loans that offers this flexible borrowing option
Remodel Your Home
Making alterations to your home can eat up a large amount of cash. If you’re not in a rush to do home remodeling or improvements, making a plan to save the funds you need can be more cost-effective. However, there might be urgent home repairs or renovations you need to address as soon as possible.
Depending on your specific situation, taking out a loan might be your best bet. Home equity loans are probably the first thing that crosses your mind. Although it’s a good idea, you’re putting your home at risk for foreclosure if you fail to repay the loan. Plus, home equity loans can take longer to process and approve.
If that’s the case, using a personal loan might be better. The process is more straightforward, allowing you to get the fund immediately, if you’re approved. In addition, you don’t have to worry about foreclosure since you can borrow a personal loan without collateral.
Finance Your Business
If you’re an entrepreneur, you may find your small company short of cash from time to time. While business loans seem ideal for business financing needs, the process can be lengthy. In addition, you may not easily get approved if you don’t have an established business history. Meanwhile, you can use a personal loan to cover some immediate business expenses or projects. However, see to it that you have a clear repayment plan in place.
Improve Your Financial Situation With A Personal Loan
If used in the right circumstances, personal loans can help improve your financial situation. And it may also require financial discipline on your part. Before taking out a personal loan, think about whether you can afford it and how you plan to pay everything back. Remember that it’s not free money, so you have to be careful where you’re going to use it.
