Personal loans are the fastest-growing category of debt. Although mortgages still account for the largest share of consumer debt (71.7%), Americans reportedly took out personal loans faster than auto loans, mortgages, credit cards, and student loans. Unlike a revolving loan, you will no longer have access to the loan once it is paid off. This is a plus for people looking to spend over their heads.
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Frequent things to use personal loans:
- Tax Debt
If you owe the IRS money that you do not have in your savings account, you can take out a personal loan to cover the costs. Although the IRS offers payment plans, they do provide a commission. Do your research before taking out a loan comparing the fees you pay for the IRS payment plan with the total interest you pay over the life of the debt.
- Wedding Expenses
The average American wedding costs over $ 33,000 which is a big difference. If you and your partner enjoy borrowing, you may take out a personal loan to pay for your wedding expenses. Your wedding shouldn’t cost nearly as much as the average. But if celebrating a special day in style is your priority, count the numbers to see if credit is the best way to cover the costs. It’s important to have a clear payment plan and understand how your monthly payments will affect your overall budget.
- Basic Medical Expenses
With more and more hospitals and doctors needing “point of service fees” (prepayments from those who are underinsured or uninsured), many have no choice but to borrow to finance treatment. Meanwhile, funding offered in doctors ‘and hospitals’ offices often comes with caveats (note the “deferred percentage”) that trap the unwary. So, personal loans are often the smartest choice in this situation.
- Debt Consolidation
In general, this may be one of the reasons why people use personal loans. You pay off your student loan debt faster and save money in the long term with an individual loan. But you need to study this carefully before pressing the button.
Problems with plastic are more common. It is so easy to accumulate unmanageable shopping and credit card debt. However, many people are faced with the need to manage multiple accounts and have virtually no money at the end of each month. Personal loans are helpful because they usually involve a one-time and more affordable payment. But this only works if you stop increasing your card balance. If you continue to increase the balance, you will probably get worse.
- Home Renovation
Borrowing to renovate your home is a smart investment depending on what project you are taking on. But are personal loans your best bet? It largely depends on how much you are spending. If it’s a couple of hundred dollars, then you may pay with cash or plastic. If it is in the tens of thousands, you should check whether you are better off acquiring home equity or refinancing with cash outflow. But for mid-sized projects, personal loans usually look good.
- Funding a Startup or Existing Small Business
Maintaining cash flow is a challenge for most startups and many established businesses. But getting commercial funding when you need it is often impossible.
- Unexpected Event
We all know what an unexpected event looks like: the car needs to be repaired, you need to visit the emergency room, HVAC breaks down during extreme heat, etc. This is the amount you want to pay from your emergency fund. Note that personal loans give the money you need within 24 hours, check for yourself at https://moneyzap.com/small-loans/300-dollar-loan/.
Increasingly, airlines and travel companies are offering point-of-sale loans to customers looking to escape the winter blues and getaway. You can also pay for your vacation with a personal loan although this is not recommended.
Federal student loans are usually the best choice for low-interest flexible loans to pay for college tuition. But if you just want to take a few online courses or develop new skills that will help you advance your career, a personal loan is a good option. Thus, you afford the training you need to get a better job or qualify for a promotion.
Before signing up, be sure to first check some free alternatives such as asking your employer if they are sponsoring employee professional development. If you are looking to change careers, find out what salary you can expect after completing your education. It’s important to know if you afford the monthly loan payments based on your new salary. This will help you decide if it is worth it.
- Funeral Expenses
Planning a loved one’s funeral is incredibly expensive. Unfortunately, not everyone is financially ready to handle the costs, especially if the death was sudden or unexpected, or if your loved ones did not have adequate insurance. Using a personal loan is a good way to finance an arrangement and relieve stress during emotional times. It is also usually a more economical option than funeral loans.
Things to Consider Before Taking a Personal Loan
The idea of quick cash sounds great but you will need to start playing right away within 30 days. Before taking out a personal loan, make sure that you have a clear purpose and plan to pay it back.
- The size of your loan. Lenders offer a wide range of personal loan sizes from $ 500 to $ 100,000. Before applying for it, consider how much you can afford to pay each month.
- Loan term. The loan usually has a maturity of one to seven years. The longer the term, the lower the monthly payments and the higher the interest rates.
- Interest rates. Most loans to individuals have a fixed annual interest rate o your monthly payment remains the same throughout the life of the loan. In some cases, you may take out a personal loan with a variable rate. If you choose this way, make sure your monthly payments change as rates go up or down.
- Fees. Some lenders charge clearance or registration fees but they can be avoided.
Personal loans help you cope with your day-to-day troubles and is a pretty convenient way to get quick money. Still, be reasonable and pay off your debts on time!