Did you know personal loans in America reached a record $120 billion in 2018?
With most Americans living paycheck to paycheck, it’s not hard to see why more people are turning to personal loans. What makes this credit facility even more attractive is the fact that most lenders don’t ask borrowers to state how they’ll use the money.
However, depending on how you use the money, a personal loan can help you fix your financial problems or lead to debt disaster.
To help you stay on the right financial track, we’re sharing the rights reasons to apply for a personal loan.
Build Your Credit
Perhaps the only thing worse than having bad or poor credit is having no credit at all. Otherwise, in a country where millions of people are relying on loans to get by, bad credit makes it harder for you to qualify for loans at great interest rates.
The good thing is having bad credit isn’t a life sentence. There are steps you can take to improve your score. One of these is taking out a personal loan.
An increasing number of online lenders are offering personal loans for bad credit, which you can use to establish a good payment history and gradually build your credit.
And if you have no credit, getting a personal loan from a credit union (or any other institution that offers no credit check loans) is an ideal way to become a credit-active consumer.
Start a Small Business
Looking to start a small business but strapped for cash?
You’ve got a couple of options.
You can borrow money from friends and family, run a crowdfunding campaign, approach equity investors or get an SBA loan. You can also apply for a personal loan!
Most aspiring entrepreneurs shy away from using personal loans to finance a business venture because they wrongly think lenders only offer small amounts of money.
Well, we’re pleased to let you know a personal loan can range from $1,000 to $50,000 or more. However, the amount you qualify for will depend on your credit history and ability to repay it.
So if you have a business idea that needs a five-figure startup capital, a personal loan could be the perfect financing option.
Settle a Financial Emergency
40 percent of Americans don’t have enough savings to sort out a $400 emergency. Push that figure to $1,000 and the percentage shoots up to 61!
Your car could develop a major mechanical problem. You or someone who depends on you could fall ill suddenly. You could lose your job without notice… There isn’t a shortage of situations that could leave you needing money fast.
How prepared are you to tackle these emergencies?
If you’re like most Americans, it’s safe to assume you will have to look elsewhere for money. Instead of turning to friends – who may also be facing financial challenges of their own -, go in for a personal loan.
Keep in mind various lenders have different loan turnaround times. If you need money urgently, say the next day, be sure to do your research and find a lender with quick loan disbursal.
Build an Emergency Fund
It’s surprising how most people decide to be sitting ducks, waiting for a financial emergency to strike.
While personal loans with short turnaround times can help you overcome an emergency, how about taking steps to save for a rainy day?
OK, we get it.
The reason you’re not putting any money away for rough times is you don’t have sufficient disposable income. Plus, building a sizeable rainy day fund takes time.
For example, it will take you one year and a half to build a $1,000 fund, assuming you’re putting away $50 a month. Yet, an emergency could be knocking on your door next week.
This is where a personal loan comes in handy. Take out a $500 or $1K loan and put the money in your rainy day fund. You’ll have greater peace of mind knowing you’re well-armed for any emergency.
Pay Off Credit Card Debt
The average credit card debt has been on a steady climb, reaching $6,375 in 2018.
Sure, credit cards have their pros. When you’re short on cash and payday is a couple of days away, for instance, your credit card will keep you going.
If you slack on your payments, though, the interest on your balances can quickly rack up and leave you in massive debt.
If you’re in credit card debt, a personal loan can come to your rescue.
Perhaps you’re thinking, “Take it a loan to pay another loan. Clever, uh!”
Well, it’s all about the interest rates. Because personal loans usually have lower interest rates than credit cards, using a personal loan to pay off credit card debt essentially means you’ll end up with a cheaper and more manageable form of debt.
Remodel/Renovate Your Home
A home remodel or renovation is one of the biggest expenses a homeowner can incur, but Americans love it. In 2018, homeowners collectively spent about $340 billion upgrading or patching up their homes.
If you’re a homeowner, you’ve every reason to splurge on upgrades and maintenance. In addition to making it a safer and better place to live in, these projects can add value to your property.
When you put your home on the market, you’ll turn a good profit. And if you’re not planning to sell anytime soon, a greater home value qualifies you for a larger home equity line of credit.
Clearly, home renovation and remodeling projects are worth it. The question is: where do you get the money to fund the projects?
You already know the answer. Take out a personal loan!
What’s more, you can go in for a secured personal loan, using your home title as collateral. Secured personal loans typically have lower interest rates than unsecured personal loans.
Besides financing the projects, you can also use the money to amp up your homeowners’ insurance coverage.
Pay for a Professional Course/Certification
If you’re in a career, you certainly want to pursue further education and enhance your chances of landing that coveted promotion.
The only problem is further education costs money. You could build an education fund from your current salary, but much of it is probably going into settling your student loans and other bills.
What do you do?
Getting a personal loan to pay for your education, especially the short advanced courses that don’t cost a fortune, can turn out to be a good investment.
After completing the course, you could get the promotion or even land a job with a better salary.
Buy a Car
Ideally, you should never use a loan to buy a fast-depreciating asset such as a car.
However, most people can’t afford to buy cars in cash. The fact that 107 million Americans hold auto debt is proof of this.
With buying in cash out of the question, you have two options: Apply for a personal loan or an auto loan.
An auto loan is a more attractive option because you’ll use the car as collateral and get lower interest rates. However, car loans have their downsides. Most lenders put a cap on the age of the car you can buy, meaning you’re restricted to the newer, more expensive models.
If you’re looking to snap up an old vehicle or a classic car, forget about an auto loan.
The good news is you can use a personal loan. Lenders don’t care about how you use the money, so you can buy any car you want.
That said, it’s vital to exercise good financial judgment when using a personal loan to finance a car purchase. Qualifying for a $20,000 personal loan, for instance, doesn’t mean you should splurge the entire amount on a car. Stick to your budget.
Finance Your Vows
Ahem! There’s a reason this comes last on our list.
Borrowing money to finance a wedding splits opinion. Never spend borrowed money on things that have no economic value is a common piece of personal finance advice, but there are exceptions.
A wedding is a special day for you and your partner. It’s probably a once-in-a-lifetime event and you should make the most of it. After all, life is all about creating memories.
As such, you can get away with using a personal loan to finance a wedding.
Though, you’ve to be savvy with your planning. Borrow within your budget and develop a clear repayment plan with your partner. The last thing you want after a blissful honeymoon is financial trouble.
Go On and Apply for a Personal Loan
Personal loans are like double-edged swords. Use them for the right reasons and you’ll reap the benefits. Misuse them and you’ll rue the day you sent in your application.
Lucky for you, we’ve shared some of the right reasons to apply for a personal loan. This list isn’t exhaustive, so don’t be disheartened if your reason isn’t covered here. The key is to have a proper plan for the money and stick to it.
Browse through our blog for more tips to nourish your financial life.