Personal loans are a popular choice when it comes to financing purchases or consolidating debt. Before applying for a personal loan, you must have an understanding of what they can be used for and how they work. This will help you recognize if a personal loan is the right choice for you. The last thing you want is to end up in loads of debt that you can’t pay off.
What’s a Personal Loan?
A personal loan is a lump sum of money borrowed from a financial institution that can be used for many different purposes.
Personal loans can be secured or unsecured. A secured personal loan means you offer up collateral or an asset in case you’re unable to repay your loan. For example, a mortgage is a secured loan. Your mortgage lender secures the loan with your home. If you don’t make mortgage payments, the lender can repossess your home.
An unsecured loan is the most common type of loan; you don’t have to put up collateral. If you don’t make your payments, the lender can’t take any of you assets. That being said, if you can’t make payments on your personal loan, your credit score will be negatively affected. This can raise your cost of taking out a loan significantly. In addition, the lender can file a lawsuit against you to collect the outstanding debt, interest, and fees.
How Does It Work?
Personal loans are deposited into your bank account in a lump sum. The loan must be paid back within over a fixed period of time at a fixed interest rate. The payback period and interest rate varies from lender to lender. For example, QuadFi offers loans with terms between three and five years, with fixed interest rates starting at 5.99%. That being said, with a QuadFi loan, there are no prepayment penalties; you’re able to pay off your loans early with no additional charges.
What Can It Be Used For?
Generally, personal loans are used for larger expenses when it’s tough to come up with the money out of your pocket. You can essentially use a personal loan for almost anything.
Debt Consolidation
If you owe money on credit cards with high interest rates, consolidating your debt might be a good option. This simply means that you pay off your debt using a loan that has a lower interest rate. This helps you get rid of your debt faster, as less of each monthly payment is going towards interest costs. In addition, grouping your debt together makes it easier to work out a time frame to pay off your balances without getting overwhelmed.
Wedding
Weddings are expensive. In fact, the average cost of a wedding is almost 30,000, according to nerdwallet.com. Many people won’t have that amount of money readily available to them.
A loan can be used for wedding expenses, such as the wedding venue, photography, the wedding planner, the bride’s dress, and more. If you need the money right away to secure these things, a loan can quickly offer the funds you need upfront.
IVF Treatment
IVF treatments are quite expensive, costing tens of thousands of dollars. Unless you have a large savings account or a health insurance plan that covers these treatments, you’ll need to figure out ways to finance the cost.
Personal loans are one of the most common types of loans for IVF treatment. This way, you can pay the doctor or providers office in full and can undergo IVF treatment.
Home Renovations
If you’re interested in renovating your home or need to do emergency repairs, like fixing plumbing or electrical wiring, a personal loan can help you fund this.
Investing in Yourself
Personal loans are a good option for investing in yourself. This can include things such as starting a business, learning a new skill, taking a course, and more.
Emergency Expenses
Emergency expenses often come out of the blue, and not everyone is fortunate enough to have an emergency fund or extra money saved on the side. Emergency medical bills, funerals, and car repairs can be very expensive and thus difficult to afford. A personal loan can cover these unexpected costs very quickly.
A personal loan is a great financial resource that can be used to pay for many personal needs. Before you take out a loan, it’s important to understand why you’re taking out a loan in the first place, and what the interest rate, fixed term, and monthly payments are.