When You Should Apply For A Personal Loan

If you are getting your finances together or planning some home renovations you may consider taking out a personal loan. Don’t be afraid! A personal loan can be a great move under certain circumstances — here are a few.

Consolidating Debt

Say you have debt on three credit cards. The debt is fairly large and the cards have high interest rates. In this situation a smart move may be to take out a personal loan with a lower interest rate and use the money to pay off the high-interest credit cards. Here you are trading one kind of debt for another but saving yourself thousands in interest fees. This is a very common use for personal loans. You can generally take out a personal loan for amounts more than $5,000.

This can also be helpful at making on-time payments if that is something you struggle with. If you have three different accounts you may forget to pay one of them and hurt your credit. One payment is much easier to remember or manage. But above all you want to make sure that you will be saving money in the long run.

Building Credit

If you have little credit or bad credit a way to build up your credit score is to take out a small personal loan and pay it off fully over 12-24 months. This will show lenders that you are trustworthy and will give them more confidence in lending to you in the future.

Before making any moves be certain that you can pay off the loan on-time in the allotted increments. If you miss a payment that will harm your credit. Take out the loan and then put the money aside and use it to pay it back. This may seem silly but it will help show you have good financial habits on your credit reports.

Emergency Needs

Sometimes things come up out of nowhere and need to be dealt with. In an emergency situation it may be worth it to take out a personal loan rather than load up your credit cards. These situations can be things like medical expenses, sudden relocation, home repairs and more.

Maxing out your credit card in one of these situations may cause a mountain of interest fees and give your no wiggle room if you need to cover additional costs.

Final Thoughts

Before taking out any kind of loan see what kind of rates you can get at different lenders so you know you are making the smartest move. When making financial moves it is always important to do your homework!

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