When Is The Best Time To Take Out A Personal Loan?
Emergency expenses can happen to anyone. Although some are financially prepared for it, others still get surprised now and then. It’s good that there are viable options that can help anyone struggling to cover an unanticipated medical bill or a financial crisis in general.
Personal loans are among the lifesavers most people who need additional funds to get by or finance something choose. However, like all other types of loans, it isn’t always for everyone or every situation. It can bring more harm than good if it’s used at an inappropriate time or circumstance.
That being said, it might be worth finding out if when is the best time to take out a personal loan.
What Are Personal Loans?
Personal loans are installment loans you can borrow from a financial institution. It means that you will get the money in a lump sum and repay it with a fixed monthly payment along with a fixed interest over time. The life of a personal loan usually ranges from 12 to 84 months, but some can go longer than that.
In several cases, personal loans are unsecured, which means there’s no need for collateral to get approved. Your financial history would be the basis of whether you qualify for the loan or not. However, personal loans can also be secured, which requires you to use a savings account or other assets as collateral. If you default on the loan, your lender has the right to claim such an asset.
While a personal loan offers a lot of flexibility in how you can use them, some lenders may not grant you the funds for education or investment purposes. It’s essential to check with the lender first to ensure you can utilize the loan for your intended purpose.
When To Use A Personal Loan?
Although you can use a personal loan for almost any personal reasons, there are times when it may not be wise to do so. A personal loan is only helpful when used to build your credit history or improve your financial position and repay it without worrying about your budget.
Take a look at the following circumstances that represent the best time to take out a personal loan:
Having multiple loans or outstanding credit card debts with different interest rates can be overwhelming. It would make more sense to use a personal loan to consolidate these debts. You can pay off your existing debts through the amount you borrow from a personal loan and pay back your new lender in monthly installments.
Instead of paying for several loans, you would only have one payment to make every month and only one lender to deal with. More than that, you can reduce the amount of interest and time to pay off debts since the interest rates are lower.
Increase Your Home’s Value
A personal loan can be a helpful tool if you want to improve your home and don’t have the cash on hand. Compared to a home equity loan, it can be a better choice as you can borrow without putting your home as collateral. With an unsecured personal loan, you would not have to worry about the risk of losing your home in the event of a default.
Taking out a personal loan to make essential improvements can be a smart move as it can also increase your home’s value. If you’re interested in selling it soon, you are more likely to get a better deal.
Meet Unexpected Costs
Whether it’s an auto breakdown or a medical bill, unexpected costs can be stressful, especially if you don’t have enough money to cover them. And there may be acute consequences if you don’t finance them. Thus, a personal loan at a fixed rate with a manageable monthly payment would be a helpful resource during such financial emergencies.
Use Fund To Earn More Money
There might be an opportunity to earn more money by utilizing a fund. Let’s say you have a business that needs new equipment to scale up production and meet customer needs. Although you can go for a business loan to make that possible, there might be instances that you won’t qualify for one. In that case, a personal loan would be an excellent financial tool.
Should You Get A Personal Loan?
Taking out personal would be a great solution for the circumstances mentioned above. But before doing so, there are essential things that you would have to consider. One is your capacity to make monthly payments and repay the loan.
Although it may help you pay existing debts and emergency costs, it would be best to assess if using a personal loan would help your financial situation in the long run. It may hurt your finances more if you don’t have a steady income to pay back the loan.
It would be best to always evaluate the benefits of getting a personal loan for your situation. If the outcome outweighs what you’ll pay for the loan, it might be worth taking out a personal loan.
It’s worthy to note that personal loans are indeed a big help in times of financial need, but it would not be wise to use them as a financial band-aid every time. Having an emergency fund is still the wisest solution you can have to overcome any financial difficulty.