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Popular Personal Loan Applications | accelerate credit

Good reasons for a personal loan

You can use the personal loan funds to pay for everything. But some of the better uses include paying off credit card debt, covering unexpected financial emergencies, or funding the cost of a home repair.

Here are some of the most common reasons for using a personal loan.

debt consolidation

debt consolidation is one of the most popular uses for personal loans. No wonder: many credit cards charge interest rates of 19% or more. When you accumulate thousands of dollars in credit card debt, those high interest rates can cause the amount you owe to skyrocket every month.

This is where personal loans can help. You can take out a personal loan and use the cash to pay off your high-interest credit card debt. You then pay back your personal loan in regular monthly installments.

This is a smart financial move when you can get a lower interest rate on your personal loan than what you’re paying on your credit card debt. Let’s say your credit card charges you an 18.99% interest rate. If you qualify for a personal loan with an interest rate of 10.3%, you can save yourself a significant amount in interest by swapping your higher-interest credit card debt for a personal loan.

Just make sure you don’t run into your credit card debt again. If you do, you’ll find yourself in even worse financial shape, since you’ll now have to pay off a personal loan on top of your new credit card debt.

DIY work

You need to fund repairs or minor improvements to your home but don’t have enough equity to qualify for one home loan or Refinance cash out? A unsecured personal loan can help.

Many homeowners turn to home equity loans or payoff refinance to help cover the cost of expensive home repairs or improvements. But to take out any of these loans, you need to have enough equity in your home. If your house is worth $250,000 and you owe $100,000 on your mortgage, you have $150,000 of equity to borrow in one of these types of loans.

But what if you recently bought your home and haven’t built up enough equity yet? Or what if you have no equity in your home at all? If your home is worth $250,000 and you owe $245,000 on your mortgage, you may not have enough equity to take out a home equity loan or payout refinance.

Alternatively, you can apply for an unsecured personal loan. An unsecured loan is one where you do not post any collateral. With a home equity loan, your home is your security. If you don’t repay your loan, your lender can file foreclosure against you and potentially take your home.

With an unsecured loan, your lender does not have to take collateral in case you stop making payments. This makes these loans riskier, which is why lenders usually charge higher interest rates for them.

However, you can use a personal loan to pay for small and medium-sized repairs and improvements to your home. Your interest rate will be higher than a home equity loan or payout refinance. But these are options if you don’t have enough equity.

moving expenses

Moving to a new home doesn’t come cheap. ConsumerAffairs estimates that it costs $600 to $1,000 to hire movers for a local move, a move from one location in your state to another. However, moving to another state can be more expensive: ConsumerAffairs estimates that a move that crosses state lines costs an average of $5,000. The cost of such a move can climb to $10,000, according to the publication.

It can be difficult to pay for these expenses out of pocket. A personal loan can give you the money you need to pay for moving expenses such as Hire professional moversBuy packing material, rent a moving truck or buy new furniture.

Unexpected bills

Nobody likes unexpected expenses. And if those expenses are emergencies that can’t be ignored? They’re even more unwanted.

Those unexpected bills are another reason people turn to personal loans. Taking out a loan with an 11% interest rate is a better choice to pay off unexpected emergencies than putting those unexpected expenses on a credit card that charges 19% interest.

Some of the unexpected expenses you might cover with a personal loan include:

  • medical bills
  • car repairs
  • funeral expenses
  • job loss
  • Unexpected Journey

Big purchases

Do you have a major purchase to make, like new furniture for your apartment or a new computer for your freelance career? A personal loan might be a better option than putting those high expenses on a high-value credit card interest rate. A personal loan is also a better choice than emptying your savings account to pay for a major purchase. As you drain your savings, you are vulnerable should you face unexpected expenses.

vehicle financing

If you need to buy a car and your credit score is too low to qualify for a traditional car loan, a personal loan can help. Because personal loans charge higher interest rates than car loans, you can usually qualify with a lower credit rating.

However, using a personal loan can limit the type of car you can buy. Personal loans typically have lower maximum amounts than traditional car loans, which limits the price of your new car.

wedding expenses

According to Knot’s Real Weddings Study, the average cost of a wedding in 2021 was $28,000. That’s a lot of money. If you need help paying for the DJ, caterer, costume, and foyer, a personal loan can help.

Richard Dement

The author Richard Dement