Loans might be ill-famed among financial pundits for robbing your future, ibut they are more predictable than credit cards and much easier to budget for. which leads to some people asking what is a good reason to get a personal loan ?. In fact, personal loans, in particular, can be a viable option in various financial circumstances and can be used for just about anything.
While some lenders want to know how you are going to spend the loan amount, you can do whatever you want to do with a personal loan, as long as it is legal. That said, what’s the catch?
Your house is the collateral with a mortgage whereas the new car is the collateral for an auto loan. But when it comes to a personal loan, often there is no collateral, which means it is unsecured. Thus, it is also inevitable for an unsecured loan to carry a higher interest rate. Therefore, it is plain to see that despite the benefits of personal loans, they are not always a good idea.
what is a good reason to get a personal loan
So, the next question that most definitely pops into your mind is that what is a good reason to get a personal loan. Read on to find out some circumstances when the benefits of a personal loan might outweigh the disadvantages!
Debt consolidation is one of the top reasons for taking out a personal loan. If you have multiple loans and have been paying high interest, consolidating your debt with a personal loan will be a good idea. Not only will it allow you to collapse several loans into one, but it will also make it easier for you to manage them all simultaneously.
Especially if you have one or more credit cards charged to the max, you can consolidate all the charges into one monthly payment with the help of a personal loan. What makes this option even better that there is a chance that you might be able to get a lower interest rate on your loan than what you have been paying on your credit cards.
That said, debt consolidation is a complicated financial decision. And therefore, it is best to consult a professional financial advisor before heading into the decision.
Financial emergencies might be another good reason to get a personal loan. When an unforeseen expense like a medical emergency hit you, instant availability of a financial source can take the financial pinch out of the crisis. So, in such a situation, personal loans can be a savior.
Even if it is not a medical procedure that you need to finance during an emergency, there are other medical bills for which you might not always have spare cash or insurance to cover. A personal loan can cover all these unforeseen expenses while you can focus on swinging back from your ordeal.
Big Life Events
Some life events are an experience will stay with you as a memory for a lifetime. Take your wedding day, for instance. But the thing about such events is that they can often blow out your budget big time. In such circumstances, a personal loan can come in handy even more than a credit card as it would make you pay less on interest.
The best thing about personal loans is that they can make almost any life event or an important purchase affordable for you. Whether you want to take a personal loan for a big event(like a wedding) or a more serious situation(like a business crisis), you can get a personal loan sized from $500 to $100,000 or even more. The amount of the loan would usually depend on your income and your credit score. Besides, lenders can even approve and transfer the loan into your account in as a little as a day or two sometimes.
There are also some other experiences in life that not only happen once but are also a lifetime dream. For instance, a dream vacation with friends, a honeymoon with your beloved, or a reunion on the other side of the world. For all kinds of vacation, a personal loan can help you make it affordable for you.
Credit Score Improvement
Using a personal loan to improve your credit score is also one of the best reasons to get a personal loan. There are three ways in which a personal loan can improve your credit score. First, if your credit report is dominated by credit card debt, you can use a personal loan to help your “account mix.” Personal loans for bad credit are limited in options, but they are always a safe bet.
Second, personal loans can help lower your credit utilization ratio, which is basically the amount of total debt you are using in contrast to your limit. The lower this amount is, the better your credit score. So, you can increase the total amount you have available to usewith a personal loan.
Lastly, by paying back the loan on time, you will be able to improve your credit score to a great extent.
Given the right circumstances, personal loans can be a great option to tackle a financial strain. However, in order to avoid any hiccup in the future, make sure that you have sufficient income to pay off your loan over time.
Figuring out if a personal loan is the right option for you might be complicated. But as a good rule of thumb and like with any type of loan, note down the benefits and shortcomings of taking out one. Make sure you understand your financial situation and research thoroughly for alternatives. Additionally, calculate your monthly payment, loan term, and interest rate that you can pay off comfortably.
Download the Doctor Money app to use a smart tool to do all the needed calculations before taking out a personal loan. Above all, plan ahead because a hundred load of worry after will not pay an ounce of debt.