Personal loans are borrowed money that can be used for large purchases, debt consolidation, emergency expenses and much more. These loans are paid back in monthly installments over the course of a few months or upwards of a few years. It can take longer depending on your circumstances and how diligent you are with making payments. In some cases, you might want to try something else before taking out a personal loan, like a small purchase or negotiating a lower price or cost. Most personal loans have fixed interest rates, which means that your payments will stay the same every month. Personal loans are also typically unsecured, meaning there’s no collateral behind the loan. If you don’t qualify for an unsecured personal loan, you may have to use collateral to be approved, like a savings account or certificate of deposit. You can also ask a friend or family member to co-sign on your personal loan to help you get approved. Whatever your loan purpose, you’ll likely have several options available to you. Financing is available through credit cards, home equity loans and more. However, in many cases, personal loans are an ideal solution for consumers. Personal loans are often less expensive than credit cards, and funding is faster than with home equity loans
Below are just two reasons to get a loan:
1. Alternative to payday loan
If you need money for an emergency, using a personal loan instead of a payday loan may save you hundreds of dollars in interest charges. According to the Federal Reserve Bank of St. Louis, the average APR for a payday loan is 391 percent, while the maximum interest rate on a personal loan is typically 36 percent.
Payday loans have short repayment terms, usually by your next payday, between two and four weeks. This quick turnaround time often makes it difficult for borrowers to repay the loan by the due date. Borrowers are usually forced to renew the loan instead, causing the accrued interest to be added to the principal. This increases the total interest owed.
2. Emergency expenses
If you have a sudden emergency, like paying for a loved one’s funeral, using a personal loan could be a low-cost option. The median cost of a funeral is $7,640, which can be difficult for many families to afford. Surprise medical bills are another common reason to take out a personal loan, especially if your doctor requires payment in full. After you’ve negotiated with the hospital, doctor, and insurance company, you might need a personal loan to cover unexpected medical costs.