One of the best things about a personal loan is that no one can tell you how to spend it. It’s not like a mortgage, a type of loan that is tied to a single purpose. It gives you the freedom to do whatever you want with it, and because it’s usually unsecured, you can feel like the loan is just some wind blowing into your sails and propelling you to do whatever you want.
You can probably see how this is a bad thing. Personal loans can be expensive, and if you can possibly compare personal loans before getting one, you should always do it to find the least expensive one. But it’s the spending that’s the real problem here – you can squander it on shopping and things you don’t need and be left with little value and lots of debt.
But things don’t have to go that way. You can use a personal loan for a good purpose. If you’re not sure what that might be, here are a couple of suggestions.
Debt Consolidation
If you can take out a personal loan to consolidate your debt into one big monthly payment, you should do it as long as it doesn’t end up costing you more. Ideally, however, you should try to get a loan with a lower interest rate – that’s where the usefulness of personal loans shines.
This way, you can use the loan to save some money. It might be even better if you find a loan that doesn’t come with origination fees. But the best effect of using a personal loan to get rid of debt faster is that it might prompt you to reconsider some of the choices that led you to be in debt and make sure that you don’t repeat them.
Unexpected Expenses
It would be great if everyone had a nice little bundle of cash that’s just sitting somewhere and waiting to help out when an unexpected expense comes up. For a lot of people, emergency savings aren’t really in the picture, which means that if something happens that requires immediate financial attention, they have to look elsewhere for the money they need.
In this case, a personal loan is a good choice because you can get it quickly, and if your credit score is good, you can get a loan at a low-interest rate. Sadly, this is often the choice people are left with when having to deal with unexpected medical expenses. But even if it’s not ideal, it might still bring comfort to people knowing there is a way to get the money they need when they need it, letting them focus on getting better.
Home Improvement
When you’re doing a home improvement project – changing the plumbing, adding a room or two, or upgrading the siding – what you’re doing is investing in the home. That’s the great thing about home ownership – you own something that increases in value every time you spend some money on it. At the very least, spending money on it will prevent it from losing any value, which is more than you can say for lots of other assets.
So when you’re doing something that’s increasing the value of one of your assets, using a personal loan to finance it makes perfect sense. It’s still not as good an option as paying for it out of pocket, but it is one of the most reasonable uses of personal loans.