UNITED STATES—Growing up, your parents probably told you time and again to avoid debts at all ‘costs’. However, the reality is that you will need a loan at some stage of your adult life.
Banks and retail lenders offer various loan products, and the one you choose will depend on how much money you need, what it is for, and how long you need to repay the sum borrowed. Here are some situations where a personal loan might be your best financial option:
To settle an urgent financial issue
If you find yourself in a financial fix, a personal loan can save the day. You could consider safe short-term loans from registered, reliable lenders if you need to pay for something right away but can afford to repay the money as soon as you receive your next salary. Such loans are also known as payday loans.
These loans typically do not exceed a few hundred pounds. However, you can apply for a larger sum and request longer to repay it. The maximum repayment period set by most lenders is three months.
Shop online for a lender that offers competitive interest rates and quick service. You could have your money within a matter of hours. This allows you to settle a debt or meet unforeseen expenses. Beware short-term lenders that operate illegally. This practice is known as loan sharking. Check that your lender is registered and ensure that you have a signed contract that details the loan amount and settlement payment.
If you have a financial matter that will cost more than a few thousand pounds to settle, consider a personal loan. The amount lenders offer is higher, interest rates are lower, and repayment periods are longer. Banks and many retail lenders provide personal loans, and it is wise to know what deals are available before committing.
It is advisable to have an emergency savings fund and commit part of your income each month. However, many people who are struggling to get by do not have the luxury of doing this.
To consolidate debts
It is not hard to get yourself into a situation where you have too many debts and loans and cannot afford to repay them. This happens to more people than one might think. Each missed payment is added to your outstanding balance together with more interest. Soon enough, the repayment amount becomes crippling and entirely unaffordable. Your credit rating suffers each time you miss a payment, jeopardising any future attempts to get loans.
A personal loan could be the ideal solution to this problem. Use the funds to settle any outstanding debts in their entirety. Thereafter, you only have one creditor and a fixed repayment amount.
The interest rates on personal loans are lower than those charged by credit card companies and other lenders. If you add your current debt repayments and compare that total with a personal loan instalment, the latter will be less. And your credit score will stop nosediving.
To make more money
Many business owners use personal loans to get their enterprises going. Such loans offer them the capital injection necessary to buy equipment, rent premises, or obtain stock. Once the business starts turning a profit, the loan will pay for itself, and the business owner has created an additional, sustainable income stream.
Another example would be taking out a personal loan to fund home improvements that increase your house’s reselling value. A renovated kitchen could add a tidy sum to your after-sales profit. Other home repairs that protect a house from further damage could also be a great use of personal loan funds. For example, you could use the money to replace your home’s damaged roof.
A personal loan could also finance your studies, which will enhance your career potential. Use the funds to pay for a course that will make you eligible for promotions and a better salary. Any self-improvement exercise that could lead to a more secure financial situation is a wise investment. This is one of the best reasons to seek a personal loan as it can bear long-term fruits.
To finance a large purchase
Many people rely on personal loans to make large purchases, including second-hand cars. As most personal loans are unsecured, the borrower does not need to worry about having the vehicle repossessed if they fail to make payments.
Some larger expenses, such as an upcoming wedding, might also justify a personal loan. It is cheaper than using a credit card, as interest rates tend to be lower. The loan repayment period could also be longer. Therefore, you might pay more interest, but the monthly instalment will be more affordable. Financial experts advise a savings campaign for such expenses to avoid going into debt at all. However, this is not always possible, and a personal loan is an optimal solution.