As the name implies, the reasons why people take out these types of loans are personal. It may be a way to finance a large project or make a big purchase that requires a large upfront investment that you may not have available in cash. In other cases, personal loans can be used to consolidate debt. Everyone’s financial situation is unique, but there are some common reasons why a person may need a personal loan. We’ll explore four of these below.
1. Emergency expenses
A personal loan can be helpful if a sudden emergency arises. This could include anything from surprise medical bills to needing to pay for a family member’s funeral. When unforeseen expenses hit out of the blue, people often find they don’t have the necessary cash on hand. Even the ancillary costs around emergency events can be expensive, and a personal loan can help people pay for things like medications, travel, and other unexpected bills.
Personal loans, which can typically be paid out quite quickly, are a good way to secure finances for emergency expenses.
2. Home remodeling
Homeowners may choose to use a personal loan for home remodeling, major appliance purchases, or for emergency home repairs. Whether it’s a plumbing or electrical need or simply some cosmetic updates, a personal loan can be a good option for those who may not have equity in their home or who are not interested in obtaining a home equity loan.
The benefit to using a personal loan over a home equity line of credit is that personal loans rarely require you to use your home as collateral, making them a less risky option to cover home remodeling and repair costs.
3. Debt consolidation
Many people take out a personal loan for debt consolidation. By using a loan to pay off multiple credit cards and/or loans, a person can combine all outstanding debt into one monthly payment. Not only is this a much simpler way to pay down debt, but it can also enable a person to lock in more favorable interest rates with the new loan.
Personal loans for debt consolidation can help people pay down loans and credit in a less expensive, less complex way. This is an especially appealing option for those who have high-interest debt.
4. Wedding expenses
Weddings can be costly, and total expenses can often surpass the amount a couple may have available to spend. The Knot projects that the average cost of a wedding in 2021 will be about $22,500. Using a personal loan to cover the more immediate costs of hosting a wedding reception allows couples to have the wedding of their dreams while repaying the loan over time.
The necessary items to host a wedding are wide-ranging in price. Big-ticket items include the bride’s wedding dress and the venue, but couples must also account for photography, food, flowers, and music.
A personal loan can be handy for individuals who need a quick influx of cash to pay for various expenses. In many cases, the interest rates for personal loans can be lower than credit cards for those with good credit. The key is to consider the pros and cons of taking out a personal loan to determine if it’s appropriate for your special circumstances.