There are many reasons why a person may need to take out a personal loan, the most common one being an unexpected cash crunch caused by a large expense such as a wedding or hospitalization.
Personal loans are also often used to obtain extra cash until payday and to pay off credit card and other types of debt.
Here are six situations when a personal loan can bail you out when borrowing from a bank or credit union is not an option.
Debt consolidation refers to combining all of your existing loans and consolidating the various repayments into a single monthly payment. It helps the borrower gain greater control over their debt and determines a time period by which they can pay off all their lenders.
While most personal loans are unsecured, a debt consolidation loan can be secured against the borrower’s assets, if possible.
Credit card payment
Credit card companies charge a wildly high rate of interest on outstanding payments, which can spiral you into a never-ending cycle of debt while also destroying your credit score. A personal loan can be used to pay off your credit card balances.
The biggest benefit of this approach is that unsecured personal loans have a lower interest rate, which helps you save money on interest while also ensuring your credit card is paid on time.
Home renovation or remodeling
Many families take out a personal loan to meet a large home renovation or repair expense. It can be used for big-ticket costs such as replacing your home’s roof, remodeling the kitchen or bathrooms, installing a solar power system, adding a new room or constructing a swimming pool.
Personal loans are a good option for people who don’t want to take out a home equity loan.
If the entire sum of your hospitalization bill is not covered by insurance or if there are aftercare expenses that need to be paid out of your own pocket, a personal loan can be helpful to ease the burden.
In particular, expensive medical services such as dental treatment, fertility treatment, weight-loss surgery and cosmetic or corrective surgery, adoption costs, and medical travel and related expenses can be funded with a personal loan.
A wedding requires big bucks. When your personal savings fall short, a personal loan with a fixed rate of interest is a quick and convenient way to finance your wedding. If you have a poor credit score and know that you’ll be turned down by the bank, personal loans with bad credit can help save the day.
Funding a vacation
If you haven’t been able to save enough for that dream tropical or cruise vacation, you can meet some of the expenses, such as air travel, by taking out a personal loan.
Parting advice: While personal loans are a convenient way to fund large expenses, you must exercise this option after due deliberation and remember that every loan needs to be paid back eventually—with interest.