Here are 10 common reasons consumers consider personal loans.
1. Consolidating Credit Card Debt
Combining several high-interest credit-card balances into one personal loan may simplify repayment and potentially reduce interest if you qualify for a lower APR.
2. Home Improvements
Personal loans can help finance renovations without necessarily using your home as collateral. Examples include kitchens, bathrooms, flooring and other improvement projects.
3. Unexpected Home Repairs
A broken HVAC system, plumbing emergency or major appliance failure doesn't always happen when your savings account is ready for it. A personal loan may provide another financing option.
4. Medical Expenses
Even with insurance, deductibles and other healthcare costs can be significant. Some borrowers use personal loans to spread qualifying expenses over scheduled payments.
5. Moving Expenses
Moving can involve deposits, movers, transportation, temporary accommodations and other costs. A personal loan can potentially help cover a large one-time move.
6. Major Purchases
Furniture, appliances and other large purchases sometimes require more cash than you want to spend at once. Before financing, compare the personal-loan APR with retailer financing and credit-card alternatives.
7. Wedding Expenses
Personal loans are sometimes used to cover wedding-related expenses. Because weddings are discretionary purchases, establish a realistic budget before borrowing.
8. Vehicle Repairs
A major repair can be difficult to postpone if you depend on your vehicle for work or family responsibilities. Personal loans can provide another option when cash isn't readily available.
9. Emergency Expenses
Unexpected expenses can arise at any time. Before borrowing, consider available savings and other lower-cost alternatives.
10. Refinancing Other High-Interest Debt
Depending on the debt and your available rate, a personal loan could potentially replace higher-interest obligations with a lower-cost installment loan.
When Should You Avoid a Personal Loan?
Borrowing may not make sense simply because financing is available. Consider avoiding additional debt when:
- The payment doesn't comfortably fit your budget
- You're borrowing for unnecessary spending
- The APR is higher than your existing financing
- Fees make the loan too expensive
- You don't have a clear repayment plan