Should I Get a Personal Loan? 9 Common Scenarios
What type of loan you should get — or whether you should get a loan at all — highly depends on your unique circumstances, and what you intend to use the loan for. One of the most versatile types of loans is a personal loan.
As opposed to many other forms of loans, a personal loan allows you to use the money on a variety of expenses, rather than one, single expense, such as in the case of a mortgage or auto loan.
The process of acquiring a personal loan is also relatively short, which can be another significant benefit in many cases. Therefore, personal loans are often the best option when it comes to handling an assortment of related expenses, expenses due to unforeseen circumstances, or disparate expenses.
Table of Contents
1. Debt Consolidation
Using a personal loan to consolidate your debt allows you to consolidate several debts into one payment plan. This can benefit you by simplifying your payment options and establishing a single interest rate that is often lower than your previous interest rates. Additionally, debt consolidation through a personal loan can lower your monthly payments overall, and extend the timeframe in which you need to pay off the loan.
2. Business Expenses
Business expenses often include a wide variety of costs, e.g. computer hardware, software, office supplies, utilities, advertising, and insurance. Therefore, because personal loans don’t have a prescribed use, they are a great option for covering these various expenses.
This may be especially true for companies that are just getting off the ground, experiencing a lull in business, or are dealing with an emergency, as a personal loan can provide a substantial amount of money within a short time. However, a business credit card is another potential option for covering regular business expenses.
3. Home Improvement
Home improvement is another situation that involves a variety of expenses for the sake of a larger project; and again, such expenses are well-suited to a personal loan. This may be especially true when you have recently bought your home, as you may have little capital left to spend after making the down payment on your mortgage.
4. Alternative to a Payday Loan
Payday loans, like personal loans, are a lump sum that can be spent on a variety of expenses. However, they have much higher interest rates and must be paid back within a shorter time frame. Although payday loans are even easier to acquire than a personal loan, a personal loan is typically an all-around better option if possible.
5. Wedding Expenses
According to the CDC, women have a 50% probability of getting married for the first time by age 25, while men have the same likelihood of getting married by age 27.
In 2019, the average cost of a wedding was $33,900. It is often an extremely expensive event that few couples can pay for out of pocket, especially younger couples. Therefore, it may be necessary to take out a loan with flexibility (such as a personal loan) to handle the costs.
6. Emergency Expenses
It typically takes approximately seven to 10 days to secure a personal loan, and the average debt per borrower is $8,402. As such, personal loans are often a good option for significant expenses that can’t wait, such as car repair or a medical emergency. A personal loan can even empower you to get emergency funds with bad credit, although this should be done with caution.
Investment with personal loans should be approached very cautiously, but you may find it highly beneficial in limited circumstances. Personal loans can be used to make low-risk investments that have a limited window of opportunity.
8. Funeral Expenses
Although it is possible to plan a funeral on a budget, the typical cost of a funeral falls between $7,000 and $12,000, and it is often a relatively unexpected expense that needs to be handled quickly.
Furthermore, the expense of a funeral is an amalgamation of many different costs, such as a casket, a grave marker, a burial plot, cremation, embalming, wreaths, space for the funeral service, and stationery. As such, personal loans are often a great choice for funeral expenses, since you can get a loan quickly and use it for multiple costs.
9. Moving Costs
Moving is an expensive process that typically is compounded by an even larger expense, such as a down payment on a house or a deposit on an apartment. Therefore, your finances are often already tight to begin with.
The moving process usually entails a wide range of costs, such as renting a truck, buying gas, hiring movers, buying boxes, and buying new furnishings as needed. The significance of the cost and the many components involved make a personal loan a good option for moving expenses — especially if you are planning to move a long distance.
It is important to note that while a personal loan can be a great option in many circumstances, you should always be discerning about when and how you borrow money.
Furthermore, the parameters of each personal loan are highly dependent on factors such as your credit history, and the lender you use. For example, while it is possible to get a personal loan with bad credit or with no income, your interest rate may be high. It is imperative to check your credit score and plan a reasonable budget before applying for a personal loan, to ensure that it won’t damage your financial standing.
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