Summary: Personal loans can be used for a variety of needs and emergencies.
It is quite normal to find yourself in a situation where you need cash to handle emergencies or meet other financial needs.
One of the most common ways of getting funds is applying for a personal loan – an unsecured loan which can be used for just about anything as long as it is legal.
However, before you apply for a personal loan, you need to keep the following points in mind:
Key Points to Remember
1. Make a Plan
- why you need the money
- how much you need
- the best personal loan offer for you (compare the interest rates and other loan terms)
- whether you meet the eligibility criteria of the personal loan lender of your choice
- a suitable repayment schedule
- how you plan to repay the borrowed loan
2. Borrow Only What You Need
3. Use Personal Loan Only For Its Intended Purpose
Here are 7 smart ways to use a personal loan:
1. To Get Out of Debt
If you have been dragging your debt for years, a low-interest personal loan can be used to pay off your multiple high-interest debts.
After debt consolidation, you just need to make one single payment every month to repay your personal loan.
- you save on interest
- you need to worry about making just one payment (fewer chances of missing the payment deadline)
- you get rid of debt faster
But, this strategy can backfire if you are not responsible about repayments and keep on acquiring new debts.
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2. Improve Your Credit
A personal loan helps you to boost your credit score.
- It helps build a good credit mix – a credit portfolio that includes revolving and non-revolving credit, and unsecured and secured credit.
- If you don’t have a credit history, taking a personal loan and making regular and timely payments every month establishes your credit history and builds your credit score.
- If you use the personal loan to pay off your other debts, it will drastically reduce your debt-to-income ratio, and that can positively affect your credit score.
3. Pay for a Wedding
Instead of using a credit card to pay for wedding expenses, taking a personal loan is a better idea.
Personal loans have a lower interest rate as compared to credit cards.
Hence you save a considerable amount of money on interest.
4. Unplanned Expenses
A financial emergency, such as a medical emergency or urgent car repair, can hit anyone at any time.
A personal loan can be a great tool to tide over such kind of unexpected blows.
By taking a personal loan, you get to cover all the expenses without disrupting your monthly budget or dipping into your savings.
5. Miscellaneous Bills
If you face income fluctuations, due to job loss, unreliable employment, etc. a personal loan can help regulate your cash flow and help pay the essential bills such as rent, electricity bill, school fees, etc.
6. Home Repairs and Improvements
When your home renovation project costs go beyond the budget, a personal loan can cover the unbudgeted expenses.
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If you love to travel, but do not have the luxury of affording an exotic vacation, a personal loan is a great tool to meet this short-term financial requirement.
By Shiv Nanda - Financial Analyst - Money Tap