A personal loan is a loan that can be used for just about anything. Many banks and credit unions offer these loans, and they typically feature flexible repayment plans.
Whether you’re looking for a short-term loan that you’ll pay off in a few months, or a long-term personal loan with payments spread out over five or seven years, most financial institutions can accommodate you.
But why apply for a personal loan?
While the average person may apply for multiple mortgage loans or auto loans throughout their lifetime, some may never apply for a personal loan. However, these loans can be extremely useful, especially when you’re cash-strapped or don’t want to use a credit card for a big purchase.
Home improvement projects
A home improvement project can increase your property value or simply improve the way you feel about your home. But most large home improvement projects cost thousands of dollars, and if you don’t have the cash, it might take several months or years to save. Not that you’re impatient, but if you simply don’t want to postpone projects for several years, a personal loan can help.
Debt consolidation
If you’re paying a high interest rate on your credit cards, a debt consolidation might be the answer. If you’re approved for a personal loan, use the loan funds to pay off your credit cards, and then pay back your bank. For this method to work, make sure the interest rate on your personal loan is lower than the interest rate on your credit cards.
Wedding
Even if you pinch pennies, a modest wedding can cost several thousands of dollars – money that you may not have. Between the wedding dress, the venue, the food, the invitation, the photographer and other expenses that will pop up, you may question your ability to afford everything.
A personal loan, however, can possibly remove any doubts. Determine a budget for the wedding, and then apply for a loan through your bank. If you have income, a good credit score and collateral, the bank may approve your request.
Vacation
When was the last time you took a vacation? If you can’t remember, then it’s probably been too long. Of course, going on vacation can be difficult if you don’t have a lot of disposable cash. But with a small personal loan from a bank or credit union, your vacation dreams can come true.
Improve your credit score
If your credit score has plateaued and you need a push to cross into the 700 or 800 range, a small personal loan may help.
Once you receive funds, deposit the full amount into a savings account. For the next three or four months, make payments to the bank as normal. In the fifth or sixth month, pay off the personal loan balance. The bank will notify the bureaus and report the loan paid, and this positive information adds points to your credit score.