Although credit cards are convenient, there is a better way to borrow money for expensive purchases. You can take out a personal loan instead. The following is an overview of how these loans work and a few examples of what personal loans can be used for.
How Do Personal Loans Work?
Personal loans are highly flexible loans issued by banks and credit unions. When you obtain a personal loan, you will receive the full amount upfront and repay it in fixed monthly installments. You can find personal loans with terms from 12 to 60 months and sometimes longer to repay. A longer-term length means lower monthly payments but higher interest costs in the long run. Select the shortest loan term to keep the total interest down while keeping monthly payments manageable.
Interest rates for personal loans are fixed. This means the rate you will pay is determined when the loan is issued, and it will remain the same for the duration of the loan. Personal loans are great alternatives to credit cards for large purchases because they have much lower interest rates.
Personal loans can also be either secured or unsecured. A loan is secured when you use collateral to cover the value of the loan, and a loan is unsecured when no collateral is used.
9 Uses for Personal Loans
What can you use a personal loan for? Many different things actually! With very few restrictions, you can generally use a personal loan for almost anything.
Continue reading to learn more about the possibilities for using a personal loan.
Credit Card Debt Consolidation
As previously mentioned, interest rates for personal loans are typically much lower than credit cards. If you have significant credit card debt, a personal loan can be used to consolidate and pay it off with fixed monthly payments. The interest savings can be significant.
Expensive Consumer Goods
Is there something you need or want to buy but you don’t have the cash for it? With a personal loan, you can go ahead and buy it instead of delaying the purchase until you’ve saved enough money. Just a few things a personal loan could be used for include:
- Appliances
- Home electronics and Computers
- Mattresses and Furniture
- Jewelry
Buying expensive consumer goods with a personal loan is also a better alternative than many store-branded credit cards, which often have interest rates that are as high (if not higher) than regular credit cards.
Moving Costs
Moving can be expensive, especially if you have to travel a long distance to reach your new home. If you are doing all of the work yourself, you will have to pay for a moving truck, fuel, meals, and possibly a hotel room. And if you hire a moving company to do the job for you, the cost will be much higher.
A personal loan allows you to concentrate on your move, and it frees your savings to help you get started in your new community.
Vehicle Repair
Vehicles occasionally need to be repaired. A transmission may go out, the engine may need an overhaul, the heater or air conditioner may suddenly stop working, or something else.
A personal loan can help you spread the cost of these repairs over time instead of taking a big hit to your checking or savings account.
A Wedding
According to The Knot Wedding Budget Breakdown, the average wedding budget is $35,000.
Even if you opt for a budget wedding, the cost can still be significant. With a personal loan, you can concentrate on making beautiful memories on your wedding day instead of worrying about coming up with the money to pay for everything.
A Vacation
Do you have a travel bug? If so, a personal loan can be used to finance a bucket-list trip of a lifetime or that much-needed vacation. Travel expenses a personal loan could cover include:
- Airfare
- Hotels
- A cruise
- Meals
- Incidentals
To make things more convenient, you could finance your vacation with a credit card and then use the money from your low-interest personal loan to pay off the debt when you receive your statement.
Home Repairs
Although homeownership has many benefits, home repairs aren’t something that can be avoided. All homes must be maintained, and older homes typically need more frequent repairs than newer ones.
When something in a home breaks, it usually happens unexpectedly. Home repairs are expensive enough if you do them yourself. If you need to hire a professional, however, the cost is much higher.
Personal loans are often approved the same day you apply for them, which means you won’t have to delay having something repaired. This is an important consideration for things that can’t wait, like a leaky roof, burst pipe, flooded basement, or something else.
Home Renovations
Have you been thinking about remodeling your kitchen? Maybe it’s time to tear up the carpet and put down the wood flooring you’ve been dreaming about?
A personal loan can bring your home renovation visions to fruition by providing you with the money you need for building materials, tools, and other things.
Medical Bills
Similar to home repairs, medical expenses can occur when you least expect them. Even if you have good insurance, high deductibles and copayments can be a major expense. Some people also end up in situations when they have to seek expensive out-of-network medical treatment, like a trip to an emergency room while on vacation.
A personal loan can help you deal with unexpected medical bills. This enables you to concentrate on getting better instead of worrying about your finances.
Funeral Expenses
When you are mourning the passing of a loved one, the last thing you want to deal with is added financial stress. A personal loan may be a quick and easy solution for the family to pay for the funeral service and burial or cremation if the deceased didn’t make prior arrangements for their end of life.
How Much Can You Borrow With a Personal Loan?
How much you can borrow with a personal loan depends on whether the loan will be secured or unsecured, your credit score, among other factors.
The typical range for most personal loans is between $1,000 and $50,000. TEG Federal Credit Union (TEGFCU) is one of a few local lenders offering personal loans above $30,000. The following article provides more information on how much you can expect to borrow with a personal loan. It also includes information on using TEGFCU’s personal loan calculator to help you estimate your monthly payments. How much can you borrow?
