Getting loans when you don’t need them can be dangerous. You don’t want to become dependent on borrowed cash, especially if there’s a risk of missing repayments and causing damage to your credit record. By taking out loans that you need and can pay off, you minimize your risk when engaging with lenders.
With that in mind, we’ve gathered five reasons why you may need a loan right here. If you can see yourself in any of these five circumstances, maybe you can benefit from a loan. There are many types of loans available, we’re focusing on personal and installment loans today.
1. Debt Consolidation
If you’re a borrower who has accrued pre-existing debt, debt consolidation may be just what you need. It’s a very common practice where borrowers take out a personal loan that is used to pay off other debts by combining them into a single, convenient monthly payment. By grouping debt payments together like this, paying off the debt is easier to do and can cut down how much you’re paying with each installment, so you don’t get overwhelmed.
It can also lower the interest rates attached to the debt, so you pay less interest over time. This is perfect for those being smothered by several high-interest debts. The time it takes to pay the debt back can also be shortened, allowing you to plan for the future more effectively.
2. Emergency Expenses
By definition, many emergencies come with unexpected expenses and other financial obligations that might be too rich for your blood. While having savings built up can help, many also turn to short-term loans to get the money they need. Healthcare or funeral costs can get expensive and, if they come out of the blue, then you may need some help. Emergency-oriented loans can get to you fast too, so you can access the money fast.
Many turn to lenders in those desperate circumstances, and it’s one of the positive services that lenders provide, but you should choose terms that make repayment possible for you. If you don’t, you run the risk of missing payments, getting saddled with fees, and harming your credit score.
3. Financing Vehicles
Covering the cost of a vehicle is another popular use for personal loans, with auto loans being offered for cars. You can get variants of these loans for RVs and mobile homes, seafaring vehicles, and even planes too. In each case, you can get the loan, get the vehicle, and then pay the loan off later in installments.
If you don’t have much liquidity but you need to get a vehicle, whether it’s for personal reasons or as an investment into a business, then you can finance it with a loan. It also enables you to keep your savings account full, so you can tackle more pressing issues like potential emergencies detailed above.
4. House Remodeling/Upgrading
Similarly to vehicle financing, you may also need a loan to remodel or upgrade parts of your home. Repairs and landscaping can get expensive, so it may be better to take out a loan and pay it off over time instead of draining your cash accounts. If the wiring in your home needs to get redone, you don’t need to dip into your emergency savings to fund the job.
Of course, you could get a home equity loan/line of credit but not everybody has enough equity in their home to make this work. Personal loans don’t put your home up as collateral, too, so they are less risky in terms of your asset ownership. Personal loans, assuming they’re unsecured, won’t risk your assets.
If you have bad credit, you may not be able to get an unsecured personal loan, you’ll have to put up some other collateral instead. You don’t want to borrow too much – personal loans won’t cover big home improvement jobs, just small or medium-sized ones.
5. Event & Vacation Expenses
Some borrowers need a loan to cover expenses relating to an event or a vacation that needs to be paid for. Naturally, whether the borrower needs to attend the event or take the vacation can be debated, but there are many rites of passage that many of us take, such as marriage. Marriage ceremonies aren’t cheap, so a personal loan can help young couples marry and worry about the costs of it later.
Many then go on a honeymoon after their wedding, which also needs to be paid for. While the average vacation may not be enough to risk a loan, bigger trips like honeymoons or other once-in-a-lifetime, dream vacations may benefit from some loan financing. Taking out a loan for these purposes isn’t to be done lightly, however, and borrowers should always make sure they can pay the loans back before even considering them.