This is a collaborative post by Ellie Jo about loans.
When you borrow money, you need to ensure that you can repay the full amount. There are many reasons why someone may need financial assistance and sometimes a personal loan may be the best option for you.
If you’re unsure what one is you may have some questions. What can a personal loan be used for? How to qualify for a personal loan? Is it sensible to take a personal loan out? In this post, we’re going to answer those questions for you.
What is a personal loan?
A bank or other lender can offer a personal loan. They are also called unsecured loans as they are not secured against any assets you own, like your home is with a mortgage, for example. As with any other type of borrowing money options, there are pros and cons to a personal loan.
What can a personal loan be used for?
Personal loans can be used for just about anything. There are some circumstances where a personal loan may even be the better option for you than say, a credit card. Here are some examples of how a personal loan could be used.
Fund a wedding
For some people, saving for a wedding can take them years, especially if they have other responsibilities such as children they need to take care of. It’s not always easy setting aside money when other things take priority, but by taking a personal loan out, you can pay for the wedding and it could end up saving you a significant amount of interest charges if you were to put it all on credit cards if the rate is lower.
Consolidate credit card debt
If you have multiple credit cards that are all maxed out completely, then taking a personal loan out to consolidate them may be a good option. By paying one monthly payment rather than multiple smaller payments, it could reduce the amount of interest you pay. If you choose to do this, you should consider closing your credit card accounts to avoid the temptation of using them once again. This will also reduce the risk of getting yourself further in debt.
Improve your credit rating
If you’ve only ever had credit card debt, adding a personal loan into the mix could improve your credit rating. When you have different types of borrowing and are showing that you are meeting the repayments each month, it can push your credit rating up.
How to qualify for a personal loan?
Personal loan lenders take into account several things, such as your age, employment status, your income, and your credit rating. You can improve your chances of being approved for a personal loan by checking your credit rating and trying to improve it. Don’t apply for too many loans at once as this can damage your score. Keep paying your bills each month and on time.
Is it sensible to take out a personal loan?
Only you can decide what’s best for you and your current circumstances. A personal loan may not be for everyone, but if you require some financial assistance, it’s good to know what options are available for you.
Greg is a Chartered Financial Analyst (CFA) with 22+ years experience in Financial Services. He has held numerous FINRA Securities licenses (series 7, 63, 65, and 66), and is an expert on Investment Products and Financial Planning. Greg has 22+ years experience as a real estate investor and degrees in Psychology and Philosophy.
Greg has been quoted/interviewed in Yahoo Money, Yahoo Finance, USA Today, Authority Magazine, Realtor.com, Business Insider, and others.
Greg is an avid runner, and the father to identical twin girls and their awesome brother. His love of budgeting and his kids led him to join The Great Resignation in 2021.
Disclaimer: Any Financial Tips on ChaChingQueen are general and informational. Speak with a professional about your specific situation.