Personal loans are becoming a very popular way for Americans to get their hands on a bit of cash. In fact, in the first quarter of 2018, Americans owed $120 billion dollars in personal loan debt.
Thus, if you’re considering taking out a personal loan, you most certainly aren’t alone.
However, there are good and bad reasons to take out a personal loan. Taking out a personal loan to pay for a vacation means you’ll pay more for your vacation and you won’t get anything back out of it other than some souvenirs and great photos. But there are also some great uses for personal loans that can help you get ahead.
Here we’ll give you some creative ideas to put the money you get from a personal loan to good use.
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What Are Personal Loans?
First of all, let’s define personal loans and what makes them different from other loan products.
Many loans have a specific purpose. Mortgages are for buying homes. Auto loans are for buying cars. Business loans are for business operating expenses or the costs involved in starting up a business.
Each of these specific loan types come with restrictions. The advantage to using them is that you typically get better interest rates and loan terms. This is because you put up whatever you’re purchasing as collateral for the loan.
For example, the home or car you’re buying backs a mortgage or auto loan respectively.
Personal loans are a different beast. There are typically very few restrictions to what you can use the money for. This makes them extremely flexible options and thus why they are so popular.
Many types of loans can be considered personal loans. This includes:
- Credit cards
- Some online loans
- Some peer-to-peer lending options
- Some bank loans
- Some credit union loans
In short, the types of personal loans available are pretty broad. Most financial institutions that deal in any sort of lending will probably have a personal loan option available.
What Should You Use Personal Loans For?
Because personal loans are so flexible, it’s easy to get yourself in trouble by using them. There’s a reason the average household in America has nearly $17,000 in credit card debt. It’s so easy to put not only the things you need but also the things you want on a credit card.
Don’t have the money for a vacation this year? A personal loan can solve that! What about not holding back on the wedding of your dreams? A personal loan can take care of that too.
But afterward, you’ll be left struggling to pay off an event that is over and done with. That wedding or vacation slowly becomes more expensive as you make your interest payments.
And it’s not an investment. You don’t get anything back out of it. At least not money anyway. You may get some great memories but that’s it.
So, without further ado, here are some creative ideas for responsibly using the money you get from a personal loan.
1. Pay for Education Expenses
Investing in your education is an excellent idea. Not only will you enrich yourself as a person, but also you make yourself more marketable in the job market.
If you invest in the right education, that is.
If your field is computer science, investing in a pottery or art class won’t help your job advancement much. But advanced computer engineering classes are a great idea to put yourself in the running for a raise or that better position you are hoping for.
Student loans may offer lower interest rates or better terms than personal loans when it comes to paying for education expenses. However, they come with restrictions that may not work for your situation. With a personal loan, you can use the money however you please.
2. Renovate Your Home
Renovating your home is another great way to use the funds from a personal loan. As with education expenses, however, you have to know what to spend it on.
Some home renovations are nice to have, but you don’t get much return for your money. The goal here is to spend your loan money on an investment that will offer a decent return when you sell the home.
You also have to factor in when you plan to sell. Repainting or freshening up your landscaping are both great moves if you plan to sell soon.
But if you’re still planning to live in your home for a few years, your return is your own personal enjoyment. By the time you do sell your house, that fresh paint job or trimmed landscaping won’t be so fresh anymore and will do little to raise your sale price.
3. Put It To Work
Of course, one of the best uses for money is putting it to work for you making more money. You can do this by using money from a personal loan to fund a side hustle.
However, to do this right you’ve got to have a good business head. But don’t worry, it’s totally doable! Plenty of big name companies started as somebody’s side project. There’s nothing that says you can’t have the same success story.
You might be wondering why you wouldn’t just apply for a business loan in this case. We’ll go back to those restrictions again, and business loans tend to have a lot of them.
Some may require you to spend the money only on equipment. Others you may be able to use for operating expenses which tend to be a little more forgiving.
But what if you want to take a chance with your business that your lender isn’t willing to back? That’s where a personal loan comes in handy. You can do whatever you please with the funds and no one will stop you.
Just be sure to do your research first and think through your decision. If you take a chance and it fails, you’ll still be on the hook to repay your loan.
4. Consolidate Credit Card Debts
So far, we’ve talked about ways that personal loans can help you generate a bit of income. Now let’s look at a few ways you can use them to save yourself some money. Both outcomes mean more money in your pocket, which is what you’re aiming for.
Technically, credit cards are considered a type of personal loan. However, this type of debt tends to come with some of the highest interest rates. Average credit card rates broke records this year by rising to 16.71%. It’s also not uncommon to see rates well into the 20% range.
While some personal loans can have interest rates equally high, most loans carry a lower interest rate. If you feel like you’re drowning in credit card debt, it may be more manageable to take out a personal loan and pay off your cards with the funds.
Then you can concentrate on making one payment a month. Plus, you’ll save the extra interest you would have been paying on your higher rate credit cards.
Just be sure you cut up the cards or store them somewhere other than your wallet if you don’t trust yourself. If you start racking the balances up again, it won’t have done you much good to pay them off in the first place.
5. Pay the Tax Man
Another way to save some money is to take out a personal loan to pay off your tax burden. Of course, it’s better to save throughout the course of the year to have the funds when it’s time to reconcile with the IRS. But sometimes it isn’t possible to have the funds on hand or you get hit with a surprise.
The IRS offers payment plan options to help you spread out the burden. But these payment plans incur fees, interest, and penalties. In many cases, these can add up to cost more than paying the interest on a personal loan.
Take care of the IRS with funds from a personal loan. Then you can work on paying your loan back without worrying about any surprise fees or penalties getting tacked onto the balance.
6. Energy Efficient Appliances
This creative use for a personal loan might seem a little strange at first. After all, buying consumer goods doesn’t seem like it falls into either a money making or money saving category.
But hear us out.
The right energy-efficient appliances can save you quite a bit of money on your monthly energy bill. Of course, this depends on what kind of appliances you currently have. Chances are, however, that if your appliances are old, the savings could be significant.
Add onto that the fact that some energy efficient purchases can qualify you for a tax credit. If you play your cards right, the tax credits and energy savings could pay all or at least some of your loan fees and interest.
Then, once you pay the loan off you get to enjoy continued savings from a lower energy bill. Plus, there is peace of mind in knowing that you are doing your part to protect the planet for future generations.
7. Be Charitable
Taking out a personal loan just to give it away to charity sounds noble, and it is. But what’s it doing on a list of creative ways to use a personal loan to earn or save money?
First of all, many charitable giving opportunities present themselves with little notice. Perhaps a friend falls on hard times and you would like to contribute to a GoFundMe. Or you become aware that a member of your community needs help with medical bills.
They can’t wait for you to earn the money to donate. Using the funds from a personal loan is a great way to spread your burden out over a few months and still be able to help.
Plus, here comes the savvy part. Charitable giving qualifies you for certain tax breaks. Again, if you play your cards right, the tax savings could be substantial.
You will probably not recoup enough off your taxes to pay the interest on the loan, however. But not everything is about money. You can feel good that you were able to help out somebody in need. Even if it costs you a bit extra money in the long run, the invisible treasure is worth it.
8. Life’s Little Emergencies
You might wonder how we’re going to turn emergencies into a money-making opportunity. But actually, we’re not going to.
Life is full of emergencies big and small. It’s always a good idea to have an emergency fund on hand to pay for them. But the reality is that many people don’t maintain that savings buffer for various reasons. In fact, 57% of Americans have less than $1000 in savings at any given time.
Whatever the reason you don’t have an adequate bank account, you still need money when emergencies pop up. A personal loan is a great way to get it.
It might not save or generate money to spend your loan funds on an emergency. But the money needs to come from somewhere and a personal loan is an easy and somewhat economical option to make that happen.
Finding the Perfect Personal Loan
Are you feeling inspired after reading this article? Maybe you had never heard of some of these ideas for making the most out of personal loans.
Now that you have, you can go put them into use. Need help finding the perfect personal loan product for your situation? We’ve got just what you need.
Feel free to check out our interactive tool to find the right loan for your needs.
Plus, if you have any more questions about personal loans or other financial products, be sure to check out our learning center for tons of great information!