You’ve heard of home loans, car loans, and student loans, but what if you need money to pay for other big expenses in your life? For everything else, you may be able to qualify for what is known as a “Personal Loan.” These are typically unsecured loans that you can apply for with certain online companies or possibly even your bank. Some banks limit what you can spend the money on, but others let you spend it any way you want.
It can be tempting to see a personal loan as a blank check, but if you splurge it all on a massive vacation, you’ll still have to pay it back, with interest. Instead, consider the personal loan as a last-resort tool that can help you cover a necessary expense.
Here are five reasons you might want to take out a personal loan:
1. To Consolidate Credit Card Debt
One of the best reasons to apply for a personal loan is to gather up all of your credit card debt and put it in one place. This will make payments much simpler and lower your chances of missing a payment and getting hit with a late fee. The loan will also force you on a path to full repayment, rather than just paying the minimum on each card and staying in credit card debt limbo for the rest of your life. Finally, a personal loan can save you a significant amount of money if you currently have high-interest cards. For example, switching your debt from a credit card with a 20% interest rate to a personal loan with a 12% interest rate can save you hundreds or thousands of dollars in interest over the life of the loan.
(Need help with credit card debt? Download our free credit card debt guide.)
2. Medical Bills
Even if you have health insurance, you may have a high deductible or be expected to pay a percentage of your healthcare costs. If you get sick or are involved in an accident that puts you in the hospital, the bills can mount quickly. If you can’t pay a $30,000 medical bill (the average cost for a 3-day hospital stay) out of pocket, then a personal loan can break it into more manageable chunks. It’ll also keep you from going overdue, which will wreck your credit and invite a swarm of calls from collection agencies.
(Further Reading: Four Smart Ways to Save Money on Health Care)
3. Veterinary Bills
Emergency vet treatments are expensive, but if Mr. Fluffums needs to have your keys surgically removed from his stomach, of course you are going to pay up. Your vet won’t exactly let you pay off the bill by being the office’s official pet cuddler for the next 20 years. Instead, a personal loan will help spread out the cost so that you can finally invest in a good key ring.
(Further Reading: Can You Really Afford a New Pet?)
4. Home Renovation
You’ve been dreaming of that kitchen remodel for five years, and it’ll take you another five years to save up for it. Instead of waiting, use a personal loan to cover the remodel now. Sure, you’ll pay more in interest, but at least that’s five years more you can enjoy your amazing kitchen. Also, if you need to justify the cost to your spouse, just remind him that you’ll get some of the cost back when you sell.
(Here’s another way to pay: Should You Refinance to Remodel Your Home?)
At WIFE.org, we do not encourage readers to splurge unnecessarily, but your wedding is (hopefully) a once-in-a-lifetime event. While we strongly advise you to keep your costs as reasonable as possible (seriously, you can hold off on the $500 wedding invites), you’ll be better off taking out a personal loan for the wedding rather than cramming $26,645 (the average cost of a wedding in the U.S.) onto high-interest credit cards. If your parents aren’t shelling out for the festivities, then use a combo of a personal loan plus cost cutting measures (did you know that you can rent wedding dresses?) to have an amazing celebration. Just be ready to start paying it off in a quick and responsible manner…after the honeymoon.
(Here’s how to save on your wedding: The Best-Laid Wedding Plans)
Of course, there are many other things you can spend a personal loan on, but make sure to ask yourself: “Is the personal loan going to help me improve my financial health?” If the answer is “no,” consider whether saving for the splurge is the smarter option.