When Does It Make Sense to Seek a Personal Loan?

Reviewed: February 11, 2014
By FinanceWeb

Running out of cash can be difficult, especially when you need to make a purchase that can’t just be stuck on a credit card. If you fall into any of the situations below, you may be a great candidate for a personal loan.

Types of Personal Loans

Secured and unsecured loans let you borrow money now and repay it over time. Here are some of the most popular reasons for taking out a personal loan.

Debt consolidation: You want to roll several high-interest debts into a single manageable loan. You can pay one bill each month instead of four or five. You may even be able to chop your interest rate in half, which can reduce your monthly payments and lower the overall cost of using credit.

Home improvement: You want to make changes to your house, but you haven’t built up enough equity for a line of credit. Personal home loans allow you to install energy-efficient windows, build a new deck or make any sort of improvements.

Healthcare assistance: When medical bills pile up, a personal loan can make the debt more manageable and keep the collection agents away.

Vacations and travel: When you’re invited to go on a once-in-a-lifetime trip, you may need to borrow money to pay for it. Travel loans let you spread the cost of a cruise, honeymoon, destination wedding or special family trip over several months or years.

Credit building: Students with limited credit and adults with bad credit can borrow small sums on short-term loans. Paying off the debt often creates a powerful credit score boost. The experience also prepares young people for larger and longer lasting debts, such as car loans and mortgages.

Right Conditions for Individual Loans

Personal loans can provide a number of benefits to the average borrower.

Many banks offer lower interest rates and higher credit lines than credit cards.

Most people can qualify for signature loans without owning a home or putting up any kind of collateral.

Individual loans can be used for virtually any reason.

A personal loan lets you borrow once and then spread fixed payments over one to five years.

Look at your unique situation and decide whether a personal loan is right for you.