A personal loan is used for almost any need you have. This is what we get from the definition of the term. However, you need to know a bit more to use it in a practical situation. This is because a personal loan often tends to put a financial strain on the borrowers. High interest rates and excessive fees make it more expensive than most conventional loan options. To make the things worse, the interests you pay on personal loans do not generally qualify for a tax deduction.
So, you need to tread cautiously when considering the option of a personal finance. Truly, there is no alternative to it in times of emergencies and when you have no other choice for a quick liquidity. It is also a better alternative to credit card cash advance and easy to get approval for, even when you have nothing of value to secure it against or are short of a good credit.
Nowadays, personal loans are generally not a preferred option for making household purchases, such as washers or dryers. Such purchases can conveniently be made with a credit card. Though the use of a credit card usually involves a higher interest rate, you do not feel the pinch as the debt is paid too quickly. Personal loans, on the other hand, are used for larger needs, something that require a good sum of money.
The common uses of personal loans in modern time may include the following:
- Debt Consolidation: A personal loan is ideal to consolidate debts accrued through unrestrained use of credit cards. A secured loan would be an even better option though. However, in case you are denied, a personal loan at a lower interest rate would be a sensible financial move for debt consolidation.
- Wedding: It can be anything between $20,000 and $30,000 to pay for an average wedding these days. It is not easy for many parents or couples to pay for the wedding. A personal loan looks promising in this situation. However, the borrower needs to exercise restraint and go ahead in time to consider how they are going to make payment and get rid of the debt burden. This is important as the overall cost of a personal loan can become many times the principal amount over time
- Vacation: If you are planning a big vacation, such as a honeymoon trip, and do not have enough fund to pay for it, then you can take recourse of a personal lending solution. It is a smart decision not to use credit card to pay for the expenses of your holiday tour. The low interest rate of a personal loan will give you a firm control over your financial matters in the long run.
- Home Renovation: It was easy to get a home equity loan a few years ago. With the mortgage loan requirements becoming stricter and home values going down in many parts of the nation, banks are not willing to give a home improvement loan so easily. Getting such loans may often feel like more trouble than they’re worth. A personal loan is a quick and easy way to get cash for a home remodeling project.
- Small Business: Young entrepreneurs and small businesses often find it too difficult to get a financial assistance from banks and credit unions. The banks are generally not willing to finance without analyzing the sales and revenue figures of a business firm. A start up is not likely to have such documents to prove their eligibility for a conventional loan. So, they are increasingly turning to personal loans, which are easy to get approval for on the strength of their personal credit and finances.
What can be the other possible uses of a personal loan? Have you recently taken a personal finance for any use other than those mentioned above? Share your experiences.