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Personal loans are incredibly popular, and it’s no wonder why.
In addition to banks and credit unions, there’s a wealth of online lenders available, giving borrowers more options. They’re fairly easy to get, as long as you meet some basic requirements. Moreover, and best of all, they can be used for anything—from vacations and weddings to medical bills, debt consolidation, and more.
In this article, we’ll highlight the top 5 reasons to take up a personal loan and why a personal loan might be the best fit for you.
Reason #1: Debt Consolidation
According to a 2020 consumer review by Experian, Americans have on average $5,313 in credit card debt which carries an average APR of 16.28%.
There are lenders that specialize in offering personal loan consolidation. These personal loans are designed for consolidating debt. They can save borrowers money in the long run by securing a new loan with a lower APR.
Personal loan consolidation can be used to pay off various high-interest debts, such as credit cards, and turn it into one easy-to-manage personal loan.
When using a personal loan for debt consolidation, it’s possible to secure a lower interest rate, lower monthly payment, and a shorter loan length. These terms, of course, depend on the borrower’s financial profile, like credit score and history.
Reason #2: Home Remodeling or Improvements
When it comes to home improvements and renovations, homeowners have several options for funding.
You can take out a home equity line of credit (HELOC), which is a secured loan that uses your home as collateral. It’s riskier since you could potentially lose your home if you can’t repay the loan, but a perk is that you only borrow what you need since it’s essentially a revolving line of credit with no set limit.
Personal loan rates may not be able to compete with a secured loan like a HELOC, but the upside is you don’t need to back up your loan with collateral.
Home is where we spend the majority of our time, and it’s likely the biggest purchase we’ll ever make. A home improvement personal loan can help you fund any kind of home project to make your home more comfortable, like a bathroom remodeling, adding a pool to your backyard, or home repairs—all of which can be very costly..
Reason #3: Emergencies
Emergencies and unexpected expenses are a fact of life and can often spring up at the most inconvenient of times. Rather than depleting your savings, you can take out a personal loan to fund an emergency purchase, like a vehicle repair or an operation on a sick pet.
While there are other avenues for securing fast funding for emergencies, like payday loans or using a credit card, these methods often come with sky-high interest rates. Payday loans have interest rates that average 400%. Credit cards aren’t as bad, averaging from 12-30%, but personal loans are often a better alternative, particularly for those with good credit scores.
Reason #4: Personal Purchases and Events
There are also plenty of instances of non-emergencies that require funding. Wedding expenses, moving costs, or other big personal expenses are good examples.
While some people have money saved for such occasions, it’s not always the best decision to use up our savings for non-emergencies. This is where personal loans can help alleviate the financial burden of costly events.
And for those with good credit, it’s easy to find great personal loan rates with agreeable terms.
Reason #5: Car Financing
Auto loans have also been growing in popularity. Many consumers have taken advantage of low interest rate auto loans to make vehicle purchases.
Currently, the average auto loan rate is 3.86% for new cars and 8.21% for used cars. These are favorable rates compared to other types of personal loans that have been discussed. Traditionally, the downside of an auto loan has been that the vehicle has depreciated in value as you are paying interest on the loan. Lately, some vehicles have appreciated in value with supply chain shortages taking place, which made auto loans even more attractive. However, this phenomenon is quite unique, and should be considered an exception.
Conclusion
There are many ways to get funding for various expenses. Yet, personal loans continue to be a popular option for many due to their versatility—they can be used for virtually anything—and the abundance of reputable lenders available, making it easy to find and qualify for personal loans.
Gone are the days that borrowers are required to visit a brick-and-mortar bank to get access to quick funding.
19.1 million Americans currently have a personal loan, so you aren’t alone. Now is the time to shop and apply for personal loans online to find the best rates available.
Read more: Top loans for vacation
Article Topics
Personal Loans
Jessica Cotzin is a writer and the Lendstart authority on small businesses and personal loans. She has been writing about personal finance and the loans industry for a number of years, and holds a bachelor’s degree in journalism from Florida Atlantic University.
