Personal Loan: Your Ticket to Financial Freedom

In this day and age, being financially stable does not mean the absence of debt. In many ways, having debt is no longer a bad thing. What matters is how you manage your debt and pay them off. Most types of debt or loans are straightforward in nature. For example, a mortgage loan is designed for buying a house while an auto loan is for buying a car. What about personal loans? Naturally, it is meant for spending on something of a personal nature.

Can you use a personal loan to pay for whatever you want? Yes, and while lending institutions will still ask for the purpose of a personal loan, they will not mind how you end up using the money. But like any type of debt, when is it appropriate to apply for a personal loan? What are the best uses for getting one?

Personal loan for debt consolidation

Who hasn’t had a credit card maxed out at one point in their lives? If you have multiple credit card payments, you can lump all these in one by consolidating all your outstanding balances through a personal loan. However, it may be slightly difficult to get approved if you have poor credit rating. For individuals with poor credit histories and no collateral, there are lenders offering cosigner loans specifically for this type of clientele.

Student loan refinancing

Student loans can be a staggering six-figure debt depending on the degree you chose. Using a personal loan to refinance an existing student loan may be a good idea if the amount is relatively small. However, you may want to reconsider if the loan is sizable and your personal loan will only cover a small portion of it. Moreover, if you refinance your student loan, you will lose eligibility for tax advantages and loan forgiveness programs.

Pay for an important milestone

Certain life events such as weddings require a significant expense. If you think putting all the charges on your credit card is a good option, you might end up getting slapped with high interest charges. It is possible to get a better rate through a personal loan. Paying for a sizeable expense through a credit card is never a good financial decision; hence, a personal loan could be your best option.

Pay for an important purchase

Before applying for a personal loan to buy something, think long and hard whether it is a ‘want’ or a ‘need’. For example, if you are thinking about buying an important item by financing through the seller, perhaps getting a personal loan to pay the seller in cash may be a better idea. In instances when you are thinking about your financing options for a particular purchase, always compare what the seller offers versus what you can get through a personal loan.

Conclusion

There is no doubt that personal loans are useful depending on certain circumstances. In some scenarios, a personal loan may also help improve your credit score. Nevertheless, before putting yourself further in debt, always think long and hard if a personal loan is your last resort to getting the financing you need. Seek first the advice of a finance expert, and weigh all available options.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes