What can you use a personal loan for?
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When you need to borrow money to cover a large purchase or emergency expenses, you can consider a personal loan. Personal loans are pretty flexible and you can use them for a variety of purposes as opposed to loans that are designed for a specific purchase (such as a car loan).
Here’s what you should know about what a personal loan is, what you can and cannot use it for, and how to get it covered.
Credibility makes it easy Compare personal loan rates from different lenders.
How does a personal loan work?
A personal loan is a type of loan that is usually unsecured (meaning no collateral is required) and you can use it for almost anything. Banks, credit unions, and online lenders offer personal loans.
Personal loans have a fixed term with monthly rates and interest. If you apply for a personal loan, The lender will review your credit history and income to determine if you are eligible for a loan and at what rate.
Personal loans vary in amount, and the amount you can borrow depends on the lender and your personal financial situation. Generally, you can find personal loans between 100 and $ 100,000.
What can you use a personal loan for?
One of the greatest advantages of personal loans is that you can use them for a wide variety of financial goals. Here are some examples of common personal loan uses:
If you have multiple sources of debt with different interest rates, Consolidating all of your debts into one personal loan can make it easier to manage. In some cases, you may be able to qualify for a lower interest rate, which can save you money and pay off your debt faster.
Life often throws curveballs that create financial stress. Between urgent vet visits, unexpected travel needs, and job loss, you may need to borrow a personal loan to cover large expenses or to make sure you keep your bills under control.
Whether you need a new water heater or want to modernize your kitchen, you can have many covered with a personal loan major home improvement expenses. A personal loan can help you pay for necessary repairs as well as improvements.
Whether your child needs a new computer for school or it’s time to upgrade their old mattress, a personal loan can be a way to fund a big purchase. Paying the personal loan in installments can make it easier to finance a major purchase.
Important life events
From weddings to moving house, some of life’s greatest moments come at a price. Whether you saw this great life event coming or surprised you, a personal loan can help you meet the costs associated with it, such as: B. hiring moving companies or buying new furniture.
Open a business
While some loan products are designed specifically for business owners, you can also use a personal loan to cover some business expenses and operating expenses. Just make sure you confirm with the lender that you can use the money on your business before signing on the dotted line.
When you have medical bills that you can’t pay, a personal loan can help break those expenses down into manageable monthly payments. Before taking out a personal loan, it is worth checking whether the doctor will reduce some of your debt or allow you to make an installment.
Car on the fritz? Since you can’t always wait until you can save up with a necessary vehicle repair, you can take out a personal loan to get the repair done sooner rather than later.
As you can see, personal loans can be used for various purposes. It is up to you to decide whether it is worth paying interest to borrow money on a personal loan.
With Credible, you can Compare personal loan rates from multiple lenders in one place.
What can’t you use a personal loan for?
Personal loans are subject to some restrictions on how the funds borrowed are used. During the application process, lenders will usually ask what you want to use the personal loan for. In general, you cannot use a personal loan for:
- Tuition fee – Usually, you cannot pay for tuition fees with a personal loan. Lenders see this as a risk as students who do not have a substantial source of income may not be able to repay their personal loan.
- Illegal Activities – It may seem like common sense, but you cannot use personal loans to fund illegal activities.
- Gambling – Even if gambling is legal where you live, you cannot take out personal loans for gambling or betting purposes.
How to get a personal loan
Each lender has their own individual application process, but you typically need to follow the steps below to get a personal loan:
- Decide how much to borrow. Before you apply, use a Personal loan calculator to help you estimate what your monthly payments are for the amount you want to borrow and whether you can afford it.
- Check your credit history. Check your credit report before submitting an application to make sure there are no errors that will affect your score. the better is your credit scorethe better the loan rates and terms you may be entitled to. So, before applying for a personal loan, fix any errors on your report.
- Shop around and compare lenders. The interest rates and terms a lender offers you affect how much you spend over the life of your personal loan. Find the best prices and conditions so you don’t accidentally overspend.
- Apply. All lenders have different application requirements, but you will usually need to provide documents such as government identification, recent pay slips, bank statements, and home address verification.
- Obtain your loan funds. As soon as you accept a loan offer, the lender will review the documents you have provided. It can take anywhere from one to six business days to review your documents and distribute your money.
What to Consider Before Getting a Personal Loan
Before you apply for a personal loan, you should consider the following aspects:
- Interest rate – Lenders charge interest when you borrow money, and you pay it monthly as part of your loan payment. The lower your interest rate, the less you will be spending on interest.
- Repayment term – Your repayment term is the time you have to pay back your personal loan and it affects how much interest you will pay over the life of the loan. In general, the shorter your repayment period, the less interest you will pay.
- Fees – Personal loans often come with fees, such as B. Provisioning Fees and Default Fees. Ask lenders beforehand what type of fees they will charge and when they will charge them – these will add to the cost of your loan.
- Monthly payment – Each month you make a payment for the main balance and part of the interest you owe.
You can easily Compare personal loan rates with credible.
Should You Take out a Personal Loan?
Getting a personal loan makes most sense when you can get a cheap interest rate and the monthly installments can fit into your budget. For example when you need to cash in quickly cover an emergency expense, and you have a strong credit history, a personal loan can be a great option.
But a personal loan makes no sense in some cases. If you don’t have a solid credit history, it may be difficult to get a cheap interest rate. Sometimes using a credit card with a low interest rate can be a better choice (again, only if you can afford to make your monthly payments). Using a travel rewards credit card to buy a trip that you know you can pay off at the end of the month saves you the hassle of applying for a loan, while also earning some rewards points.
Before you take out a personal loan, you should consider whether the costs are really necessary and include interest.