Are you in a pinch and need financial assistance or your savings account is not padded as you want it to be? A personal loan can offer the help you need. It can settle those bigger expenses you need. However, it’s not free, and you need a goal while taking out the loan. Besides, they may come with limitations depending on the lender.
Nevertheless, personal loans are a viable choice for large projects like debt consolidation, buying a car, remodeling a home, etc. They are unsecured types of loan and normally come with a lower interest rate than a credit card. Unsecured simply means they don’t need to be backed up by collateral. They’re offered by banks based on the borrower’s history and ability to repay. Thus, it is crucial to have a good score and file taxes promptly.
What is a personal loan?
A personal loan is typically a loan offered by credit unions, banks, or other financial institutions. It is offered in a lump sum and paid back in monthly installments over some time, particularly 1 to 5 years.
Personal loans fall into different categories depending on eligibility requirements.
Below are the terms to know when considering taking out a personal loan:
Secured loans: The borrower needs to provide an asset to be used as collateral to qualify for the loan. It could be a home, car, etc.
Unsecured loans: They do not need you to provide collateral before qualifying for the loan.
Repayment term: It’s the amount of time you will have to pay back the total amount you borrowed.
Personal loans are a great way to get cash quickly for any large expense that could not fit into your budget, such as moving costs, medical expenses, and weddings. But, be wise on how to use the money and ensure that it is being used on an expense that is worth the repayment with time.
Situations When to Apply for a Personal Loan
Here are scenarios where you may need to apply for a personal loan:
- During Medical Emergencies
Emergencies don’t come knocking at your door. They come when you least expect them, especially health-related problems. Therefore, you need to always be prepared. Not all the time, you have savings that can help with your medical expenses and not good medical insurance. You will find yourself in this situation and your only source of cash will be through an instant personal loan. With these funds, you can cover your medical fees since these loans do not need collateral.
- Fund Higher Education
Many banks offer educational loans to those in need. But, the drawback of such loans is that they come with high-interest rates. Generally, banks provide funds for education for students in a few selected institutions. But sometimes, more than education loans are needed to cater for tuition, living costs, relocation costs, and much more.
In such a case, a personal loan can be helpful. The amount can cover all relocation expenses and other related costs. The best part is that such loans do not need collateral and normally carry lower rates.
Weddings are considered important in India. They’re a big deal, and many people spend their money to make this day special. However, not everyone has savings ready for such occasions, or it could not be enough. A personal loan is a great way to fund weddings as long as they come with good rates. Such loans are known as marriage loans where individuals use the money from a personal loan to fund the weddings.
- Debt Consolidation
If you have multiple credit cards with high balances, they will cost you more interest payments. This is due to the fact that credit cards have higher interest rates and may lower your credit score. Therefore, the best way to settle this is to combine all those high interest rates into one huge debt. Then, take a personal loan, otherwise termed as a debt consolidation loan, to repay the single loan. This way, it will be easier to manage this one large debt and help you make payments on time and without missing.
- Home Makeover
Users can also avail personal loans for home development projects. Any loan taken to cater for home repair is just like other unsecured personal loans. The funds can be used to cover various expenses such as flooring, changing the home’s ceiling, giving the kitchen a new look, buying a few appliances, etc. The amount and interest rate you’ll be charged will depend on your creditworthiness.
You never know when an urgent situation that needs urgent cash strikes. But personal loans can save the day. If you are tight on your budget or have little savings, there is always a last resort to that problem: taking out a personal loan and settling whatever problem you may be having. However, discipline is the key. You need to use the funds for the right purpose, though. Nevertheless, it is advisable to always be prepared and save for rainy days. There is nothing as relaxing as having enough money saved in the savings fund to use when in need. Thus, set aside some of your monthly income into a savings account.