There are a lot of good reasons to take personal loans: they are usually quick, without a ton of associated paperwork, and you can get decent interest rates on them – a lot better than what you’d get on payday loans, for example. As with any other type of credit, however, it’s important to take a unsecured personal loan only if you actually need it, and only once you’re absolutely certain you can deal with the monthly repayments, without failure.
Dealing with Emergency Situations
One of the most common reasons people take personal loans is dealing with an unforeseen financial emergency, for instance, covering medical bills. If you find yourself buried in health-related debt, analyze how much the insurance will cover, and then a personal loan is probably the best solution to cover the remaining part. Unfortunately, most of the personal bankruptcies in the US are related to medical debt, so do your best to take only as much as you can afford, and to repay it promptly.
Another situation when the insurance doesn’t always cover everything is a car accident. You will probably have to take something out of your own pocket for the repairs, and a personal loan can help you get your vehicle back on the road sooner and safer.
And then, there’s the case of credit card consolidation. This doesn’t really count as an unpredictable emergency, but it may turn into a real emergency, if the credit card debts pile up one month after another. The interest rate on a personal loan is usually better than the credit card deals, so you should be able to save a little and therefore repay everything faster – as long as you stop using your credit cards to make ends meet.
Personal Loans as Better Alternatives to Other Types of Credit
It’s not exactly recommended to take a personal loan for small house improvements or gadgets, but if you need a new computer or a television set, the rates will definitely be lower than those for a credit account with the retailer or manufacturer. If you need to buy a car, the rates of a regular auto loan are a lot more interesting, since you use the car as collateral, and therefore the lender’s risk is covered. But most banks are not thrilled about providing credit for the purchase of a used car, which doesn’t have a high market value. So, if you want to purchase a vehicle that will just get you there for the next year, you may have to use a personal loan.
For house improvements, a home equity bad credit loan has better terms. Of course, that depends on the amount you need to borrow. If you need just a little for minor adjustments, then you probably won’t need an equity loan, and, once again, a personal one is a safer choice.
Try to avoid taking a loan to pay for a vacation, even if you need a break after a tiresome year at work. A vacation is not an investment, and you’re better off promising yourself to save a little every month, so you can afford to pay for a vacation using your savings next year.
