If you're in a pinch and need some extra cash, you might be considering a personal loan.
But for those of you who have never taken out a loan before, this can sound a bit intimidating.
Between dealing with banks, credit unions, or other lenders, you may be asking yourself if your unique scenario warrants a loan application.
The fact that you've already recognized that there are loan options available for you means that you're headed in the right direction.
Personal loans can be used for a wide range of options.
Lots of different people can benefit from this guide. It's helpful for anyone who needs to know if their reason for needing money is good enough to apply for a loan.
But it's also beneficial to anyone who wants to improve their personal financial life.
You may not realize that you need a personal loan until you read this—and that was part of my inspiration for writing this guide.
I've researched and outlined the top 10 reasons why you need a personal loan.
Make sure you review this guide in detail before you apply to borrow money.
1. Debt Consolidation
Simplify your payments with one personal loan
For those of you with lots of debt, you're probably paying high-interest charges to multiple lenders. This can be an inconvenient and tedious process.
As you know, you need to keep track of several different monthly payments, with different amounts and due dates and other terms.
With so much to remember, it can be easy for a payment to get overlooked or lost in the shuffle.
Just look at your credit card debt alone as an example.
If you've got three or four cards with outstanding balances, you're writing four checks each month, and you're also incurring various interest charges based on the rate for each card and the amount owed to each creditor.
But a personal loan for debt consolidation can make your life much easier.
You'll use the loan to pay off those creditors, which has several benefits.
First of all, your monthly payments will be simplified.
Now you'll be making just one payment at a fixed rate with a defined end term, as opposed to paying multiple ones.
This is much easier to keep track of so it will help you stay organized and on top of your payments.
Furthermore, these types of loans will save you money on interest charges.
For the most part, debt consolidation loans offer lower interest charges than the rate that you're currently paying.
By reducing your debt and interest, it will make it easier for you to pay off your personal loan faster as well.
Debt consolidation loans also have a high approval percentage.
So you have a great chance of getting approved, even if you're applying for a loan with bad credit.
2. Home Improvements
Take care of your greatest asset
If you're like most people, your home is probably your most valuable asset, so it's in your best interest to take care of your property.
Obviously, you want your home to look a certain way and have specific features based on your personal preferences and comfort.
After all, it's the place where you sleep at night.
But home improvement projects can also add value to your home, and there are personal loans available that can be used for nearly all aspects of improving your house.
There are different types of home improvement loans depending on your situation.
For example, there are specific loans for new homeowners.
There are also options for those of you who want to make structural changes, as well as other loans that allow you to use funds without alternating the existing structure.
These loans can get even more specific.
For example, the USDA offers rural development loans for homeowners that need to make repairs and upgrades because of safety concerns.
They can be used to improve things like:
- Electrical work
- Foundation repairs
You can also use a personal loan to pay for appliances in your home.
No, I'm not talking about a toaster or a blender.
I'm referring to big purchases like an oven, refrigerator, dishwasher, sink, washing machine, or dryer.
These are expensive items that you could finance with a personal loan.
3. Boost Your Credit Score
Great option for people with a thin credit history
This reason is often overlooked. But if you've got bad credit or no credit, you've got another good reason to consider taking out a personal loan, aside from the obvious financial benefit.
Your credit history has a major impact on how your score is determined. So for those of you with little to no history, it's unlikely that you have a high credit score.
It's important for you to understand exactly how your credit score is calculated so that you can then learn the best ways to boost your score.
As you can see from the graph, your length of credit history has a 15% impact on your overall credit score.
While you may not think that's enough to make or break you, if the length is short, then your payment history will be thin as well—and that has the largest impact on your score.
Taking out a personal loan can help your score because it's a different type of loan, simply having it included in your credit report can already add a boost to your score.
By taking out a loan and making regular payments on time, your score will rise as a result, which will also show lenders that you're able to make payments.
Then, it will be much easier for you to secure a personal loan of higher amounts in the future.
All of these same concepts apply to people with bad credit scores.
Taking out a personal loan can help repair your credit score by establishing a recent good credit history.
4. Medical Bills
Loans for instances that your insurance won't cover
If you've recently had an unexpected trip to the doctor's office or hospital, these costs can add up quickly, which is especially true if you're uninsured or underinsured.
Even if you have good insurance, you might get stuck with a high bill if your insurance company doesn't cover a certain procedure.
An ambulance ride, overnight stay in a hospital, surgery, anesthesia, surgeon fees, and x-rays can all be financially overwhelming when the bill comes.
Don't let these bills go unpaid and sent to collections. This will hurt your credit score.
Instead, using a personal loan to pay for these medical costs is a much better solution, as you can use the funds to pay for anything related to your health—including dental care and vision as well.
For example, you might need braces or Lasik eye surgery that won't be covered by your insurance company.
These are both good reasons for taking out a personal loan.
5. Higher Education
Student loans to help pay for college
With tuition costs rising in the United States, it's not reasonable for everyone to pay for their education in full, which is is especially true for young adults, who have very little work experience.
But student loans are a great option for people who need help paying for school—just look at the average amount of funds received from these federal student aid programs!
If you have student loans, you need to come up with a smart strategy to repay your debt.
Typically, a standard plan for a federal student loan is made with equal monthly payments for ten years, which includes the debt plus interest—but that's not the only option.
You can also set up an extended plan and pay off your loan over 25 years if you want to make lower payments.
However, the longer the lifetime of the loan, the more you'll have to pay toward interest charges.
There are even student loan options that are based on your income—something like 10-15% of your annual income until it's paid back.
The great thing about a student loan is that you can apply and get approved even if you have bad credit or no credit.
6. Wedding Costs
Finance one of the most important days of your life
Personal loans are a great option to pay for your big day and they can be used to cover any cost associated with your wedding.
Buying a dress, tuxedo rentals, hotel reservations, venue deposit, food, flowers, DJ, and photographer are all standard wedding expenses.
If you're in the process of planning a wedding right now, you know exactly how expensive all of this can be.
Rather than paying for it out of pocket right now, taking out a loan is a reasonable option.
Once your wedding is over, you can even use the rest of your personal loan amount to pay for the honeymoon—the relaxing vacation you deserve to celebrate your union.
You only get married once, so don't let the cost deter you from booking the trip of a lifetime.
Pay for all expenses associated with a funeral
I know this is a sensitive topic, and I have empathy for anyone who is dealing with this right now.
Losing a loved one is tough, so I want to offer my condolences to those of you who recently suffered a loss.
But for some of us, this emotional event quickly turns into a financial problem.
If the estate of the deceased can't cover funeral expenses, a family member can use a personal loan to pay for the services.
Again, I know it can be difficult to think of these things during a time of mourning, but it's important for everyone to understand that there are personal loans available to help alleviate financial stress during these tough times.
Caskets, headstones, and funeral parlors are expensive.
Without sounding too morbid, you may even consider taking out a personal loan to secure the money needed to pay for funeral services while you're still alive.
This will help make sure that all of your affairs are in order so your family doesn't have to deal with them in the future.
8. Pay For a Vehicle
Buy a new car or pay for any expensive repairs
You can take out a loan to buy things like a car, RV, or a boat.
Obviously, these are expensive purchases that you might not have the cash on hand to pay for in full.
As you can see, your credit score has a direct impact on the terms of an auto loan.
If you're buying a vehicle directly from a dealership, they will likely have financing plans available for you.
But don't just assume that's your best option.
You may be able to find a personal loan with more favorable terms that you can use to purchase your vehicle in cash and in full—and you can end up saving a whole lot by paying the dealership in full.
In addition to purchasing a car, you could also use a personal loan to pay for other costs associated with your current vehicle.
For instance, if you need new tires or a new transmission, a loan can help you cover those expenses.
Maybe you got into an accident and you're not covered in full for the damages.
A personal loan is definitely an option you'd want to consider for this scenario.
9. Buying a Home
Get approved for a mortgage loan
Whether you're buying a small 600 square foot condo in the city, a six bedroom home on the beach, or you're somewhere in between, there are loan options available for you.
There are several different loans available for you depending on your situation.
For example, there are certain mortgage loans offered to first-time homebuyers.
Before you buy a home, you'll need to visit a lender to see how much you'll get approved for.
The lender uses your credit score and credit report to determine your pre-approval amount before providing you with a letter that you'll use to show sellers that you're serious, willing, and able to pay for the home in question.
Mortgages are long-term loans involving substantial amounts of money, so shop around and do your research to make sure that you're getting the best possible rate available.
10. Moving Expenses
Cover the costs associated with a big move
Moving to a new house or apartment can be expensive.
It doesn't matter if you're moving down the street, downtown, or across the country—these costs aren't petty, and they add up quickly.
Depending on how much furniture you have, you may have to hire a moving company.
If not, you'll still need to rent a truck, buy boxes, plastic wrap, packing peanuts, and moving blankets.
You might be buying new furniture or shipping your car somewhere.
It doesn't matter what your reason is for moving, a loan can help you pay for these expenses.
Even if you're moving because of a new job, you can't expect and assume that your employer will pay for all these costs.
Finding the Perfect Personal Loan
Huge expenses are a normal and oftentimes necessary part of life, so it's a good thing there are many ways to get through them even if you don't have enough money saved up.
Since 1998, through my company, CreditLoan, I've been helping consumers by providing the best tips on a wide range of financial topics while providing them the actual tools and solutions they need to manage their financial woes.
Now that you've had the chance to review our list of the top reasons for needing a personal loan, ask yourself if any of these reasons resonate with you personally.
What is your most pressing need right now that a personal loan can help you with?
Don't get me wrong; there are definitely other reasons why you may need a personal loan.
But I wanted to lay out the most popular and financially responsible reasons.
For example, could you use a personal loan to buy a new wardrobe? Well, sure … I just wouldn't recommend that.
Find a loan that's best for you based on the reasons listed above.
So what's your reason for needing a personal loan?
Let us know in the comments section and reach out if you have any further questions.