What is a Personal Loan Used For?
If you find yourself needing to take out a personal loan, you’re not alone. More than 22 million Americans have a personal loan as of the third quarter of 2022, an increase from 19.9 million people in late 2021.
Personal loans are the fastest-growing debt category, according to a 2019 Experian study. The largest portion of consumer debt is mortgages. As of 2019, Americans took out personal loans at a faster rate than mortgages, auto loans, student loans, and credit cards.
There are various reasons that people take out a personal loan. In this article, we will look at what the funds from a personal loan can be used for. After reading this post, you should have a clear sense of what the best uses are for your personal loan.
Factors to Consider Before Taking Out a Personal Loan
While the thought of having cash right away is enticing, be aware that you’ll need to begin making payments on a personal loan immediately, typically within 30 days.
It is important that you have a well-defined reason for seeking a personal loan. Also, have a plan in place for paying this money back.
Here are some things to consider as you research a personal loan:
Size of the Loan — You will find that lenders will offer a wide array of loan sizes, from $500 to $100,000. Prior to applying for a personal loan, think about how much you can afford to pay every month.
Fees — Certain lenders charge origination, or sign-up fees, however, there are ways to lessen or avoid these fees.
Interest Rates — The majority of loans come with a fixed-rate APR (Annual Percentage Rate). This means your monthly payment remains the same for the lifetime of the loan. In some cases, you’re able to take out a variable-rate personal loan. If you opt for this, be sure you’re comfortable with your monthly payments changing if rates increase or decrease.
The Loan’s Term — The length of time you’ll have to pay off your personal loan is normally between one and seven years. The longer the term, the smaller the monthly payments will be and the higher your interest rates will be.
Primary Uses of a Personal Loan
Paying Off Debt
The most common purpose of a personal loan is debt consolidation. The typical American has four credit cards and has amassed $5,525 in credit card debt as of 2021. When you increase your balance on these credit cards, it can become challenging to manage all these various bills and APRs. A personal loan enables you to consolidate or streamline your payments into one monthly payment.
By taking out a personal loan, you enjoy the benefit of saving money on interest. For example, people who refinance high-interest credit card debt can able to save financially with a lower APR.
Paying for Home Improvement Projects
Are you a homeowner? Then you have the option of taking out a personal loan – or a home equity loan — to repair or make upgrades to your house. Home equity loans and lines of credit are two ways of paying for some home renovations. However, they are secured, and they use your home as collateral. Also, be aware that certain lenders have tightened HELOC (home equity line of credit) lending requirements because of COVID-19.
If you’d rather not take the chance of losing your home in the event you fall behind on payments, a personal loan is a good choice. What’s more, it will very likely be quicker to secure a personal loan than a home equity loan.
Approximately 17 percent of consumers in the Experion study mentioned above used a personal loan for home improvements. A personal loan provides you with the option to pay for home renovations with an installment plan.
Paying for Moving Expenses
If you are planning a major move – like moving out of state or even across the country – a personal loan could be a great way to pay for the moving costs. You’ll also have to pay for the cost of packing up your personal belongings, hiring a moving crew, and transporting your things to your new residence.
A personal loan will pay for these varied expenses, as well as for the costs associated with your new residence. For example, you may need cash to furnish your new home or to pay for the first and last month’s rent at your apartment.
Paying for Medical Bills
Prior to taking out a personal loan, it may be a good idea to negotiate your medical expenses down. You could then look into a no-interest installment agreement. If this doesn’t resolve your medical debt issue, then a personal loan may be the right option as you use the loan funds to eliminate your medical debt.
Personal loans can also be used to pay for a wide array of medical treatments that include fertility treatments, surgeries, elective procedures, and more.
Paying Off Tax Debt
If what you have in savings isn’t enough to eliminate your tax debt, then taking out a personal loan makes sense. You could look to the IRS for payment plans, but they include fees.
When you decide to take out a loan, compare these IRS fees – and the penalties you’d accrue with the IRS installment plan — with the total interest you’ll pay over the lifetime of your personal loan. Doing this should present you with the best option.
Paying for an Emergency
If something sudden happens – such as paying for an immediate medical bill or a funeral – using money from a personal loan may be the best option for you. With sky-high medical costs, and the thousands of dollars that a funeral costs, personal loan monies will give you peace of mind that you’re able to cover the substantial costs of these types of emergencies.
You may also need a personal loan to cover unexpected medical costs after you’ve negotiated with the doctor, hospital, and insurance company.
Because funds from a personal loan can be disbursed quickly, it is the perfect solution for practically any type of emergency.
Look to California Community Credit Union to Set Up Your Personal Loan
The California Community Credit Union personal loan is a quick and easy option when you are in need of extra funds for a variety of reasons. Whether you will be using these funds for an unexpected expense, to buy an appliance, to go on vacation or consolidate debt, a California Community Credit Union personal loan can be a great help.
When you are ready to take out a personal loan, just contact us and we will get started right away.
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