When we think of it, every one of us faces a financial struggle once in our lives. Some of us are ready with some emergency savings, but not everyone is as lucky or privileged enough to have money to save. That’s why we look for an alternative, and a personal loan is a viable option in various circumstances.
In the world of finance and lending industry, a personal loan is not a new term. Some of us are even too familiar with it. However, it’s best to explain why any individual looks for a personal loan as a fast loan option than other loan types.
Personal Loan Can Be Use For Many Reasons
One particular reason why a personal loan is considered a great loan option is that borrowers can use it for many reasons. Compared to other loan types, such as mortgage loans solely for purchasing a house, a car loan for taking out a new car, or a home improvement loan to finance renovations and repairs, a personal loan can be used even for these stated reasons, showing that a personal loan is very flexible.
To give you a more concrete idea of where you can use a personal loan, here are a few examples in which a personal loan might be a good idea.
From time to time, part of our house gets deteriorated or damaged, so we are pressured to do some minor or major repairs. Others even consider remodeling. Some remodeling or renovations will incur you money, and this is where a personal loan is a good idea.
Though there’s what we call a home equity loan or home equity line of credit, however, it’s putting your property as collateral. If you want to finance your home remodeling with no collateral, taking out a personal loan is the best option, and it’s less risky.
Medical expenses are one of the common reasons why individuals take out a personal loan. We can’t predict what will happen or if one of our loved ones gets sick, but the good thing is we have a definite resort where we can source money to pay for it.
Medical emergencies or expenses can incur less than or more than $5,000, depending on the situation. The good thing is, personal loans can be released quickly and can cover the unexpected expense right away.
The same thing with how every home gets repaired or replaced over time, home appliances need to be fixed or replaced, especially for those being used frequently. Unfortunately, home appliances are expensive, and taking out a hefty amount in your savings can be quite daunting as it can instantly deplete your savings.
But when you take out a personal loan to purchase a home appliance, you quickly solve the problem. Though you need to pay the interest and the whole loan amount, it’s better than delaying home chores that could even lead to a bigger and expensive alternative.
The Good and the Bad Of Personal Loan
The advantages and the downside of taking out a personal loan are inevitable for every borrower. Hence, they need to know both to weigh in their choices and choose what’s best for them. Here are a few advantages and downsides of taking out a personal loan.
Best Alternative to Payday Loans
Payday loans are getting popular in the lending industry because they compete best with traditional loan options, such as personal loans. However, borrowers should take heed of the danger and the risk of taking out payday loans.
If we compare the two, payday loans’ biggest risk is their higher interest rates. Personal loans and other loan options such as credit cards have a relatively low APR.
If you’re struggling with some finances, compare the two and choose wisely. Both can offer quick cash solutions. However, they weigh differently on their cons.
The Downside of Applying For a Personal Loan
In case you decide to apply for a personal loan, here are some advantages that you might wanna consider first:
Hard Credit Check
Many borrowers are afraid of taking out a personal loan because lenders perform a hard credit check. This means the lender will conduct a hard inquiry on your credit report to review your credit history and check your credit score. It’s known that hard inquiry can dip your credit score.
However, don’t be taken aback by the idea. FICO and VantageScore take all your loan applications to multiple lenders as one as long as you apply for the same amount in a short period. Once granted, you can keep up in maintaining your good score by diligently paying your bills. So, a hard credit check is a very light downside of taking out a personal loan.
A personal loan can assist you in many ways if you’re having a financial hardship. You can use it for various and unspecified reasons. As long as you need the money, you have the documents, and your credit score is good, taking out a personal loan is a good idea.
However, though, like with the other loan options, personal loans also come with advantages and a few downsides. Every borrower must be wary as well and need to weigh everything before making a decision. Hence, financial literacy is a must.
Tiffany Wagner is a financial writer and blogger for seven years. She has been writing about financial literacy, money management, business, finance, and loan education. Tiffany also advocates for teaching financial literacy at a young age. She is currently working on her book about financial literacy, and she’s planning to have it published by next year. The book aims to help young professionals manage their finances at an early stage of their working life.