Key takeaways:
- Personal loans are versatile and can be used for various purposes such as consolidating credit card debt, financing home improvements, and covering medical expenses.
- Using a personal loan can be more cost-efficient than credit cards due to lower interest rates. However, it’s essential to understand the loan, have a repayment plan, and avoid accumulating more debt during the repayment period.
- Personal loans can be used for various life events, including special occasions, moving expenses, and emergencies, but borrowers should be aware of the interest rates and repayment terms before applying.
Personal loans are used for many major life purchases, such as home renovations, weddings, medical bills, and consolidating credit card debt. These types of loans, which can be used to pay off debt or an unexpected expense, are—in certain cases—viewed as more cost-efficient than credit cards. This is because they tend to come with lower interest rates.
How to use personal loans
A personal loan is a versatile way to pay for something, but it’s important to remember that these are loans that need to be paid back in a timely manner. As such, it’s critical to understand the terms of the loan and when it needs to be repaid. Having a plan that outlines how much you’ll pay each month and how long it’ll take you to pay off the loan in full is key to the personal loan process.
Besides mortgages, personal loans are the fastest-growing type of loans. They have grown in popularity because you don’t need to put up collateral—such as your home or car—to be approved. Most personal loans come with a fixed interest rate, which means your interest rate won’t change throughout the life of the loan. If you qualify and get approved, you can receive the money in your bank account in as little as a day or two depending on the lender.
Here are 6 ways to use a personal loans with Upstart:
1. Credit card consolidation
Credit card debt can be difficult to pay off, especially when interest rates are high and if you have multiple cards to pay off. A personal loan helps you pay off credit card debt in one lump sum. After that, the only thing you’ll need to remember is to make timely payments on your personal loan each month. Enrolling in auto-pay is a great way to keep your loan in check.
Expert tip: Remember to put away your credit cards so you don’t rack up additional debt while you’re trying to pay off an existing balance.
2. Financing home improvements
In 2020, 76 percent of homeowners made at least one improvement to their home. While this is likely a result of pandemic-era behavior, home improvements are consistently top-of-mind for most homeowners.
It goes without saying, but improving your home and/or making repairs is expensive. If you don’t have the cash to pay for these large expenses, a personal loan can help. Homeowners may also turn to a HELOC (Home Equity Line of Credit) or a home equity loan.
The important difference between home loans and a personal loan is that the home loans require you to designate your house as collateral. If you end up defaulting on the loan, you run the risk of losing your home. ..
A personal loan typically doesn’t require you to use your home or other assets as collateral, but it may come with a higher interest rate than a HELOC or home equity loan.
3. Paying off medical expenses or vet bills
Sudden emergencies may arise at any time. A personal loan can help you cover the cost of unexpected medical bills—or even vet bills if you have a pet.
Medical bills are one of the top reasons why Americans go into debt—one study found that 66 percent of all bankruptcies were linked to medical issues and their associated costs. Unfortunately for most consumers, the cost of healthcare is high and health insurance doesn’t always cover out-of-pocket costs.
4. Financing special events
Special events, such as weddings and honeymoons, can be expensive, and it’s definitely possible that you’ll need help to cover the costs. That cost can be significantly higher for couples planning a destination wedding. According to wedding industry experts, couples spend an average of $4,466 on their honeymoon. A personal loan can help alleviate some of the pressure to use high-interest credit cards to pay for special event charges.
5. Paying for moving expenses
Moving is another large life expense that is—sometimes—unavoidable. As a result of the COVID-19 pandemic, many Americans were faced with relocating.
Between renting a truck and hiring movers, moving costs add up quickly. This is especially true if you’re moving to another state or across the country.
The average cost of moving in 2020 ranged from $500 to $12,000, depending on the distance. Since then, moving costs have surely risen.
Bottom line
A personal loan can be used to cover an emergency room visit, finance a home project, or even fund a big trip. Before you dive in and apply for one, be sure to know the requirements, the interest you’ll be paying, and the terms for repayment.
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