Most people frown upon taking personal loans. Mostly due to fear of the debt incurred. But there are exceptions, and taking up loans may be what you need.
When you need cash urgently for emergencies or an unexpected expense, and sometimes just when you need money badly to sort out financial responsibility, these are all scenarios when you wish you could get a personal loan. Personal loans have a vast number of uses, and you can pay for anything.
To most lenders, as long as the loan you are borrowing is to be used for a liable, unquestionably legitimate reason, and good credit score, the loan will be approved instantly. Some do not even ask for explanations as long as you qualify for the loan. But when exactly is taking a personal loan a good idea?
Here are seven different scenarios that are logical to take up a personal loan.
Family emergencies can range from someone in your family dying to the kids being unwell. These kinds of emergencies entail anything that would affect your loved ones. Taking a personal loan to take care of them passes as a practical reason.
If someone passing in your family and they didn’t leave much behind to take care of these expenses, you or another member of the family might feel obliged to take up a personal loan to cater for everything. Personal loans tend to have lower rates than credit cards.
Funerals in general can be costly. Funds needed may not be in your budget at the moment. For a significant expense like this, a personal loan is better than using your credit card as it will save you much cash on interest charges.
In medical emergencies, getting quick access to cash ensures that you don’t get any costly suspensions, especially those involving your life. As personal loans do not always need collateral, it is an excellent idea for quick and time-sensitive use such as a medical emergency. Like all emergencies, a medical one often happens when you are unprepared.
Having an insurance policy is excellent as it ensures that you don’t dip your hands into your savings. Still, it doesn’t always cover all illnesses, and the most significant limitation is that it sometimes ties you to a specific hospital. Trouble starts brewing when the hospital covered by the policy is not the one you need at the time or when you realize your illness isn’t covered, and personal loans are helpful.
There is no concession with personal loans and allows you to get treatment anywhere you want and soon. For such an emergency, you should consider the availability of credit that a loaner can put in your account for at least 24 hours. Medical loans are also a great option.
Consolidate Credit Cards
This strategy helps lower annual rates than those on your credit cards individually as you combine them to make one monthly payment. This strategy is often helpful when you have credit cards that have reached their limit.
Taking a personal loan and making one monthly payment of your credit cards lets you enjoy lower rates, making the repayment more manageable. It not only shortens your payoff period, but the new debt has more economical prices than before. Only consolidate when you want to pay off the debt ultimately.
Consolidation might not always be a good idea as your credit score may reduce by a couple of points if the financier decides to make a hard inquiry on your credit card. Other ways to ensure that you pay your credit card debt is by starting a debt controlling strategy and paying your debts on time to keep the balance as low as possible.
It is also vital to ensure that you don’t get carried away by your freshly available limits and incur more debt by overspending before you pay the loan. Keep yourself on the check and focus on the crucial goal of repayment of the mortgage.
Finance Student Loans
If you feel that the amount on your student loan is going higher every year, and it’s becoming almost impossible to finish paying them, a personal loan can pay it faster. Since the rates are lower for personal loans than student loans, it will be way easier to finish paying that.
The cons of this move are that you will lose the advantages of student loans, including tax advantages. With federal student loans, you get benefits such as leniency in repayment and suspension. Once you use personal loans to pay the student loan off, you are no longer eligible for loan forgiveness options.
Business Needs Financing
Although you can use a business loan, the rates can be too high for you, and a personal loan can be the best option you have as the prices are lower than those in business loans. In most cases, when your business is still small, it is nearly impossible for you to qualify for a business loan, and although the sum from personal loans tends to be way more modest, that may be the viable option for you at the moment.
Beware that you first need to plan on getting a way to pay back the loan. Such an investment will personally affect you and your business. Find out the areas that need to be polished in your store and start generating revenue before taking a loan so that you can pay it off.
Personal loans can help improve your credit in many ways. By paying your installments on time, you are building your credit score. If you have different types of loans and are always on time for the payments, your score increases considerably and makes your history look more appealing than the usual credit debt history you have.
Using an account mix, you can take a personal loan to increase the amount accessible for you to use, and your credit score will look good.
Finance a Purchase
Personal loans tend to come in handy when you need to make a purchase but don’t exactly want to wait till your savings are enough or when you’re thinking smart and don’t want to use your high-interest credit card. Cash is always better for big purchases. Personal loans will save you time and make things super easy for you.
For example, you can use it to pay for a washing machine and save the cash you would have otherwise used to pay for the services. Another example is when you need to finance a large purchase like a car or a motorcycle. Personal loans can help you get them as soon as possible, but as sweet as the deal may sound to you right now, it is important to remember that the loan will come with interest rates.
Thinking through before taking a personal loan is always a great idea. You certainly don’t want to add debt to more of the obligations you may have. A personal loan is readily available cash for your immediate needs, and like any other loans come with its pros and cons.
It’s up to you to decide how best to utilize without being irresponsible. Using a personal loan for any of the seven scenarios is when loans are a good idea. Taking a loan with a precise payment plan is also a bonus.
Here is a list of licensed moneylenders that might be able to help you, do your due diligence before taking any loan.