You may find personal loans to be a practical option depending on your specific circumstances. First, you want to understand exactly what a personal loan is and what it isn’t. Some of the loans you will find are for a specific purchase you are making and some aren’t. For instance, you would purchase a home with a mortgage loan. Whereas, if you were paying for college you would pay for it with a student loan.
Here are some of the specific circumstances where you may want to take out a personal loan.
- When Consolidating Credit Cards
One of the best times would be if you were consolidating your credit cards. If you happen to have one (or more) credit cards that are completely maxed out, you would be able to get a personal loan to effectively consolidate everything into a single payment that you would make monthly. What makes this such an attractive option for those in this situation is the fact that the interest rate that you get on your loan may be less than the fees you are paying with each credit card. The biggest risk associated with this method would be feeling completely relaxed that you have ‘paid off’ your debt with a loan which might tempt you into adding even more to your previously maxed out credit cards.
- Refinancing Your Student Loans
Another good option would be using it to refinance your student loans. This could provide you with some immediate relief in the right circumstances. You could find that your student loan interest rates are higher than you would like. If you can acquire a personal loan that is less, you will be able to pay off your loans much quicker because you won’t be paying as much in fees.
There are some issues with this plan. For one, student loans typically offer tax advantages. Likewise, when you get federal student loans, you will generally get a few benefits for repaying, deferring, and forbearance. Likewise, if lawmakers suddenly offer loan forgiveness programs, you wouldn’t be eligible for it if you refinance them.
- Financing a Single Purchase
When you are looking to make a large purchase, it may be in your best interest to finance it through a personal loan. Whether or not this would be a good move solely depends on if you are financing something that is a want or a need. If you were planning on taking out a loan for it anyways, you may find that getting a personal loan would be beneficial because it will typically be cheaper than financing through the seller. You don’t want to make any sort of decision regarding financing something when you are in the moment because you want to think over your options. Try to ask the seller what they can offer and think about how it compares to a personal loan. That way, you can make a much wiser decision.
- Paying For a Wedding
While you shouldn’t hold a wedding that you can’t afford, you will want to have a wedding. Any large event would qualify as a good time to take out a personal loan over putting everything on a high-interest bearing credit card. After all, you likely won’t be able to pay off the entirety of the wedding expenses in a single month. Thus, getting a personal loan could give you more time and end up saving you a lot of money throughout your payback period.
- Improving Your Credit
By getting a personal loan, it could help to improve your credit in a variety of ways. For one, it could potentially help diversify your account mix. If you have a bad credit history or score having more than a single type of loan will typically benefit your score as long as you are diligent about paying it off. The better personal loans for those with bad credit will be much more limited in terms of options, but they will still be preferable to payday loans.
Likewise, it could even help to lower your credit utilization ratio. This is the ratio of the total amount of credit you are using directly compared to your credit limit. The lower the total amount you have, the better your score will be. Thus, having a personal loan will end up helping to increase the total amount that you have freely available to use.