A personal loan is the best financial tool a debtor can use in emergencies. It is an ideal funding option for those who lack valuable possessions. People generally use personal loans for large purchases. However, there are other reasons an individual applies for this type of loan.
Why do millions of people use personal loans for their necessary expenses? It allows you to easily borrow money from banks, credit unions or online lenders. Besides, debtors can repay the borrowed money in monthly instalments.
Most people tend to confuse personal loans with instalment loans like student loans. However, these are two different types of loans, and they work differently. Instalment loans are used to fund specific expenses like vehicle purchases or education.
Personal loans can be used for different reasons, including home renovations or repairs. It is also different from a personal line of credit, which you can’t use to pay a lump sum amount. So, learn the differences between these loans before applying for them.
What is the Maximum and Minimum Period to Repay a Personal Loan?
Personal loans have a fixed end date for repayment. If you fail to clear off the debt within the given period, the creditor might also take legal steps against you. Thus, reduce your monthly expenses to repay the outstanding debt.
The minimum repayment time for personal loans is 12 months, and the maximum is 60 months. However, it might vary from one financial institution or credit union to another. So, ask about the repayment time when getting a personal loan – it will help you to avoid legal constraints.
What are the Types of Personal Loans You Can Apply For?
Two types of personal loans are available for individuals with low monthly income – secured and unsecured. One must have some type of collateral to get a secured personal loan. If you fail to repay the borrowed money, creditors will seize your possessions.
You are eligible for a secured personal loan if you have valuable assets like cars. Additionally, the debtors must have a savings account or certificate of deposit. Otherwise, banks or credit unions won’t let you apply for a secured personal loan.
On the other hand, an unsecured personal loan doesn’t involve any collateral to borrow money. You can apply for unsecured personal loans from banks and credit unions like secured personal loans.
Online lenders also offer unsecured personal loans to qualified borrowers. However, choosing secured personal loans over unsecured ones is smart. The latter has a higher interest rate than the former. We recommend using secured personal loans for emergencies – repaying it is easier.
Where Can You Use a Personal Loan?
Commanding your financial condition is essential before applying for any load. Unlike other loans, personal loans are the best option to finance large projects where a lump sum amount of money is required.
Why do most people think of this loan for emergency expenses? It allows individuals to borrow $1000 to $100,000 from lenders or banks for different purposes. Here are the top reasons to use a personal loan:
1. Home Renovation Projects
Don’t have enough money for your home remodelling project? Use a personal loan for the project funding and add value to your house. Moreover, it is different from home equity financing. A personal loan doesn’t consider your home as a pledged asset.
However, debtors must repay the loan within a week. Some lenders give you a month to pay off your borrowed money for home improvements.
You must consider certain factors before applying for a personal loan to renovate the kitchen or bathroom. For instance, personal loans have higher interest rates than home improvement financing tools.
Do you know personal loans involve larger monthly payments than other financing options? Yes! So, comparing the alternatives will be better before taking the ultimate decision. Go for the home improvement loan that fits your budget and is easy to repay.
2. Debt Consolidation Loan
You might have opted for many loans when your financial condition was not good. Now, the question is, how can you repay all these loans at once? The best way to clear off these multiple debts is by consolidating them using a personal loan.
A debt consolidation loan combines all your loans into one you must pay monthly. It includes unsecured debts like medical bills or credit cards. This loan also has a lower interest rate than other funding options.
So, you can save money and write off the loans faster with debt consolidation. However, you must take help from a financial advisor to calculate how much you save by consolidating all the debts using a personal loan. Ensure to decide on a monthly repayment amount that you can pay easily.
3. Emergency Purposes
What if your car breaks down, and you need a lot of money to repair the faulty part? Use a personal loan to fund this emergency. However, you must look for personal loans with lower interest rates.
The lower the APR, the easier to repay the debt. Choosing a personal loan with a 36% APR will be wise if you have a low monthly income. Plan to repay the loan as soon as possible, or it will affect your credit score.
4. Moving Expenses
A local move costs an average of $900 to $2000. However, a long-distance moving expense ranges from $2,700 to $12,000. If you don’t have enough cash, you might consider a personal loan to fund the moving cost.
You can move all your household assets from one place to another with personal loans. Additionally, this loan allows you to buy new furniture and home appliances.
Debtors can also cover transporting their cars or other vehicles across the country. So, save your emergency funds by getting a personal loan from a lender or financial instructions.
5. Medical Bills
Another common reason to apply for a personal loan is to pay huge medical bills. Making the full payment to doctors can take time and effort with a tight budget. Getting a personal loan can help you to cover the expensive medical costs.
Banks offer medical loans to cover health care costs. However, they have higher interest rates and monthly repayments than personal loans. So, consider using a personal loan to pay the medical bills immediately.
Other Reasons to Use a Personal Loan
Big-ticket events like weddings can cost more than $40,000, and paying the whole amount is impossible. Thus, many take personal loans to cover the wedding expenses. Don’t have enough money to visit your dream destination? Consider applying for the fly now and pay later personal loans.
However, financial advisors recommend not to use personal loans to cover discretionary expenses.
Here are the other instances where a personal loan won’t be the best option:
- If you have a bad credit score
- You qualify for other financing options
- If you can’t afford the monthly debt repayments
How to Apply for a Personal Loan Online?
Open the bank’s website from where you want to apply for the personal loan. Look for “personal loan” from the list and tap “Apply”. Provide your contact number, and the bank will send an OTP on your phone,
Enter the OTP and fill in the application form with the required details. Select “Proceed” and enter the loan amount you need. Choose the type of personal loan you need and the repayment tenure. Click “proceed”, and the loan amount will be transferred to your bank account once the bank completes the verification process.