A standard personal loan is an unsecured loan option that makes it possible to borrow a small or large amount of funds. Usually, these loans are repaid in equal monthly payments, making them easy to add to any budget.
If you have a specific financial need in mind, you may be curious about whether you can use one of these loans for it. The good news is that personal loans can be used for various reasons and expenses. Continue reading to learn more about how you can use a personal loan and general information on these loans.
Some Common Uses for a Personal Loan
Not sure whether your expense falls under the umbrella of personal loan uses? Below are some of the reasons that people seek out personal loans to help you figure out whether these options are the right fit for your needs:
Using Personal Loan Funds for Debt Consolidation/ Debt Payoff
One reason that people seek out personal loans is to pay off debt. One way to do this is through debt consolidation. Debt consolidation is the process of paying off multiple debts by taking out a new loan. The goal is to get a more manageable monthly payment and lower interest rates. Many people use a personal loan to pay off high-interest loans like credit card debt, a payday loan, an auto loan, or a title loan. And because the interest rates for personal loans are relatively competitive, they can work well for paying off debt through debt consolidation. You can also refinance a single existing loan with a personal loan.
Personal Loans for Medical Bills and Payments
Most people pay for their medical costs through insurance. Depending on the care you receive, you could face substantial medical bills, even with medical insurance. Sometimes a repayment plan from a hospital or clinic may not be affordable, and that is where a personal loan can help. With your new loan, you can pay off your medical debt and then pay back the more manageable personal loan. Or, if you don’t have insurance and need a certain kind of procedure, you can use a personal loan to pay for it upfront. Personal loans can also be used to purchase expensive medication.
Moving can be an exciting time, but it can also come with several costs, especially if you are moving with a lot of furniture and a far distance. A personal loan can help you pay for all kinds of moving expenses, including paying movers, packing materials, boxes, gas, and other transportation expenses. It can also be used for things like a security deposit, the first month’s rent, or a mortgage payment.
School Costs for Various Levels of Education
Whether you are an undergraduate student, a graduate student, or going through a certification program, you can use a personal loan to fund your educational expenses. Things like tuition, room and board, books, and transportation are just a few of the costs that can come with school. Not everyone can qualify for federal student loan funding or pay for all of school upfront. A personal loan can help bridge that gap making it possible for you to continue your education.
Use a Personal Loans for Home Repairs/As a Home Improvement Loan
A home equity loan or home equity line of credit is a popular choice for homeowners with a significant home improvement project or repair in mind. However, a personal loan can work just as well as home equity loans or lines of credit without worrying about losing your home!
A Personal Loan as a Down Payment on a Large Purchase
Another way you can use a personal loan is for a down payment on a large purchase. These purchases can include things like electronics, furniture, real estate, or a vehicle. For many of these things, you may be required to have some sort of down payment. For example, when buying a home, your mortgage company may ask you to have a minimum of 3% down, which can be thousands of dollars. A personal loan can help you buy the things you need to live a quality life.
Paying Monthly Bills
Almost everyone has required monthly bills they have to pay or necessary purchases they have to make. These bills can include things like rent or mortgage payments, insurance, groceries, transportation, household essentials, etc. If you have unexpected expenses or emergencies pop up, it may mean not being able to afford these essentials. A personal loan can help make ends meet while you work through a lapse in income or an emergency.
Covering Major Milestone Events
There are various milestones that we all may go through, things like starting college, getting married, having children, changing careers, etc. One of the best things about a personal loan is that it can be used for any of these expenses. And since the loan amounts range, you can use the funds to cover almost any high cost.
Traveling is a huge goal for many people, while others may find they have to travel for work, school, or because of an emergency. You can definitely use a personal loan to finance a trip, regardless of why you are taking it. Use your loan funds to book flights, rent a car, pay for your stay, and any other travel costs that add up during your trip. And don’t worry about paying it back until you are home!
Car Repairs or a Vehicle Purchase
If you have a car, you have probably experienced an unexpected repair. Whether it is a flat tire or something more extensive like a transmission, those repairs will be essential to getting your vehicle back on the road. A personal loan can be a good choice as a car repair loan and can help take care of almost any car repair or required maintenance. Although auto loans are the most popular choice for financing a car—you can also use a personal loan to purchase a new or used car.
Where Can I Find Personal Loans?
There are kinds of personal loan lenders, and the first places you may think about looking is with financial institutions like credit unions and banks. However, there are also online lenders and private lenders you can visit in person.
Banks and credit unions tend to be pretty strict with their credit requirements, while private lenders come with more flexibility. And so, if you have bad credit, private lenders are the best place to start your search.
When trying to pick a lender, make sure you do some research on the lender; check out past customer reviews and look up the lender themselves. Additionally, you should look at the personal loan itself. Look at the interest rate and compare it to the average interest rate of similar loans for your finances, the repayment terms, and general loan terms.
How Can I Get Approved for the Amount I Need?
Personal loans can be secured and unsecured. An unsecured personal loan requires no asset, while secured loans do. Most personal loans are unsecured, and the approval process and the loan amount will depend on your credit score/credit history, income, and ability to repay the loan. While with unsecured loans, your income, the asset’s value, and your ability to repay the loan will all impact loan approval and the loan amount you can get.
Regardless of what type of personal loan you are applying for, there are things you can do to increase your chances of approval for the loan amount you need with a personal loan:
Try and Improve Your Credit Score as Much as Possible
The better your credit score, the stronger your chances of getting a higher loan. And even if you don’t need a considerable loan amount, a better credit score will mean better interest rates and more flexible repayment terms, which can help you save money. Improving your credit score doesn’t have to be a tedious process, something as simple as making your payments on time helps.
Provide All Sources of Income, No Matter How Small
Make sure to provide all your income sources on your loan application. Most lenders will accept all kinds of income, including part-time, passive, and contract income.
Add a Cosigner or Co-Borrower to Your Loan
A cosigner and co-borrower is a third party who will need to have good credit and income that you can add to your loan application for better chances of approval and a higher loan amount. Before you add either of them, you should know the differences between a cosigner’s role and a co-borrower’s.
Correct Any Mistakes on Your Credit Reports
Errors on your credit reports can disqualify you from a loan option for no fault of your own. And so, before you begin applying for a loan option, check your credit reports and correct them for any mistakes or inconsistencies.
Include an Asset as Collateral if You Weren’t Originally
Adding an asset to a loan, especially if you have bad credit, can help increase your chances of eligibility and loan amount by adding more security for the lender. And so, with a secured personal loan, you could increase your chances of approval with bad credit.
Is Borrowing Money Possible Despite Bad Credit?
Yes, borrowing from a personal loan is possible even with bad credit. Start with bad credit loan lenders. You can also look into secured loan options or adding a cosigner or co-borrower to your personal loan application (as mentioned above).
What Do I Need to Apply for a Personal?
Personal loans work pretty simply, and so many lenders won’t ask for a lot of requirements with these loans. Here are some of the documents you will need:
- A Government-Issued Photo ID — A driver’s license, passport, permanent resident card, military ID, etc.
- Proof of Income — Bank account statements, pay stubs, letters of income, etc.
- Proof of Residency — Letters of mail, a lease or mortgage agreement, utility bills, etc.
- Documentation Regarding the Asset — If an asset is involved with your loan, your lender will request documentation on it.