Charles H. Miller
Unlike a mortgage or auto loans, personal loans are unsecured, meaning that borrowers do not need to provide collateral for the loan. They, however, need a good credit history or strong prior history with the lender in order to qualify for a loan.
This loan can be used for just about anything, but today we are presenting you with the most common use cases, according to SoFi. Let’s roll…
1. Debt Management
By this, we mean debt consolidation or refinancing of other debts. Repaying credit card debt is one of the most common uses of personal loans, and the reason for this is simple — whereas an average APR of a credit card is in the 15 to 20 percent range, personal loans are much more affordable. Hence, they are used to clear the balance users may have on their credit card accounts.
Another use case is to consolidate multiple debts into one loan that is easier to manage. Depending on the interest rate agreed on those other debts, you could end-up saving money by taking a new personal loan.
2. Wedding
Weddings are expensive and more often than not, young couples take a loan to finance this very special occasion. Budgeting all the possible expenses takes time, and on average — the bill is around $30,000, according to The Knot.
There is also a lot stress involved, hence many couples get an agency to organize a wedding on their behalf. That, of course, increases the cost, and that’s where a personal loan could kick in, freeing up the couples to focus on what really matters — like seating charts.
3. Home Refresh
Whether it’s a fresh coat of paint, a new piece of art, upgraded appliances or a replacement of that old, saggy mattress and dingy sheets — home refresh comes with a price tag that is often financed with a personal loan.
Depending on upgrades, home improvements can come in anywhere between a few hundred to tens of thousands of dollars. And based on what you do, all this work could boost the value of your home.
Related: 5 Tips To Make More Money When Selling Your Home
4. Moving
An in-state move costs about $1,170 on average, according to the American Moving & Storage Association, while moving out of state has a price tag of around $5,630. And that’s just to pay for the (moving) service with additional costs also including things like boxes, cleaning fees, partial security deposit returns, and more.
Next, once you reach the destination — your new home — you will be faced with more expenses, such as up-front cash for a deposit, common household items like cosmetics and light bulbs, food, and many other costs.
At the end, you get a bill many Americans can’t pay from their savings. And rather than pulling out their credit cards, it is more affordable to take a personal loan, instead.
5. Medical Expenses
When an unexpected medical emergency occurs, you want to focus on your or the health of your loved one. That, however, could involve a hefty price tag for many Americans, whose insurance doesn’t cover all medical procedures.
It is at that time when being able to pay for the out of pocket expenses with a low rate personal loan can relieve some stress to let you focus on what’s important.
A different example is when a couple is trying to get a baby with in-vitro fertilization (IVF), which isn’t typically covered by insurance and on average costs $12,400 per cycle. And it takes a few cycles for IVF to work, prompting couples to take a personal loan to cover the procedure.
6. Funeral
Finally, funeral is also on the list of most common uses of personal loan with basic costs including the funeral service, the burial or cremation, and any gathering of friends and family surrounding the memorial. A modest funeral costs between $5,000 and $10,000, and a cremation may cost a few thousand dollars. If the deceased did not plan appropriately to finance his or her death, and life insurance doesn’t cover the bill, a personal loan may be an easy solution for the family.
Getting ready for a personal loan
When it comes to taking a personal loan, planning is everything. Before contacting a bank — or visiting SoFi’s website which we recommend — it is important to set a realistic budget for the expense you are trying to finance with that loan. Include all the costs in the equation, and determine what kind of a monthly payment you can pay back. Once you’re done with that, ask for the rate and take it from there.
