People take out personal loans for many reasons. People find that refinancing debt can save them money. Others find that a personal loan with a fixed payment is the easiest way to cover the cost of an emergency expense. You can find the savings and flexibility you need through a personal loan with low rates and fixed loan terms to better manage your finances, seize an opportunity that can help you advance your education, or even pay for your wedding or vacation.
How Personal Loans Work
Personal loans are loans you take out in one lump sum and pay off over time with interest through monthly payments. An unsecured personal loan, or one that doesn’t require collateral, gives you greater freedom in how you spend the money. A cosigner can help you get approved for a personal loan if you are ineligible for an unsecured loan.
Interest rates play an important role in determining borrowing costs. A personal loan interest rate is determined by a few factors, including your credit rating, loan amount, and income. Customers with excellent credit can expect a simple personal loan application process and the lowest personal loan rates. Those with average credit may have higher interest rates.
If you want to reduce your interest rate, consider a secured loan. Getting a secured loan with collateral, such as a savings account will lower the lender’s risk and make it easier for you to qualify for the funding you need.
8 Reasons to Get a Personal Loan
Personal loans can help fund major purchases, home renovation projects, or unexpected expenses. Many people apply for personal loans for these common reasons.
Pay Off Your Credit Card Debt
It’s frustrating to have multiple credit card debts, but you’re not alone. Americans owed a total of $398.67 billion on their credit cards in 2020, with interest costs ranging from hundreds to thousands of dollars every year.
You can save money on your credit card bill. According to the Federal Reserve, in the first quarter of 2021, credit card interest rates averaged 14.75%, and personal loan interest rates averaged 9.46% for the 24-month period.
Personal loans can be easier to manage than credit cards. You won’t have to worry about variable rates and monthly payments, and you know exactly when the loan will be paid off. As an added benefit, you could lower or eliminate your credit card debt, which positively affects your credit score.
Consolidate or Refinance Your Debts
Personal loans are commonly used to consolidate existing high-interest debts. Depending on your financial situation, the motivation for consolidating debt may be different. You can usually combine multiple debts with a single personal loan or refinance a single debt with a lower-interest loan.
Refinancing and consolidating your loans can impact the amount you pay each month. Choosing a shorter-term loan results in higher monthly payments, but you will pay your debt off much faster and enjoy lower borrowing costs. If you have a limited budget, a longer-term loan may be easier to handle, but it costs more in the long run due to higher interest rates. Choose which option works best for your financial situation.
Poor credit may have led you to consider payday loans as a financing option. However, payday loans often have short repayment terms, typically two to four weeks, making them difficult to pay off in a short period.
In the first six months of 2019, 48% of people who took out a payday loan had already rolled over (renewed) another payday loan in the previous six months because they were unable to repay it. Payday loans also have a higher annual percentage rate of 400% compared to personal loans.
Personal loans typically have longer loan terms and lower interest rates and fees, making it easier to pay off over time.
People spend a lot of time in their homes with their friends and families and, as a result, often make the house their biggest investment. A home improvement personal loan might help you receive the extra funding you need to make improvements to your kitchen or renovate your basement to gain another living space.
Personal loans are a good option for people without enough equity in their home or do not want to take out a secured loan like a home equity loan or a home equity credit line. Unlike home equity loans, personal loans don’t often require collateral, making them safer.
Cover Unplanned Emergencies
An unexpected medical bill or roof repair after a thunderstorm may have financing options that have high interest rates, which means you may end up spending more money. Funerals can also incur large expenses, with the average funeral costing $9,135. A personal loan can be used as a low-cost option in an emergency in case you do not have enough in your savings.
You can take advantage of lower interest rates and save on interest costs with a personal loan. If you plan to pay for a medical expense, ask your provider if there is a monthly payment plan before applying online for a personal loan.
Auto loans are popular for people who purchase a new car due to their quick approval and convenience. For certain situations, getting a personal loan can be more advantageous.
Some lenders won’t offer you an auto loan if the car has more than 100,000 miles or is in poor driving condition, so if you plan to buy and restore an older car, an auto loan may not be an option.
Most lenders also won’t approve an auto loan if you can’t afford a down payment, and late payments or a loan default could result in the repossession of your car.
Personal loans do not require a down payment, and you cannot lose your car if you cannot make payments. If you can afford the loan, you can buy any kind of car you want.
Pay for a Special Event
Money can’t buy memories with your loved ones, but it may be a big stressor when you are planning your dream wedding or a luxury vacation. Personal loans are often used to finance weddings or other special occasions.
Wedding loans can be used to pay for the bride’s gown, flowers, and the venue. Holiday loans are a great way to pay for that dream vacation you’ve always wanted, whether it’s to celebrate a special anniversary or graduation. If you don’t want to dip into your savings or emergency fund for your wedding or vacation, consider taking out a personal loan.
Invest in Education
College and university education can be expensive. It’s common for students to borrow money to help pay for their education. Student loans are only for education and must be used only for that purpose. Personal loans are a more flexible option for funding your studies, allowing you to cover the costs of your daily life while you’re in school.
Applying for a Personal Loan
Personal loans may help you save money by paying off or consolidating your debt, improving your credit rating, and achieving your goals. The reasons for getting personal loans are numerous.
To find out if you qualify for a personal loan, consider credit unions rather than a bank or other financial institution. Since credit unions are member owned it’s often possible to get lower interest rates. You can put the additional savings towards paying off your existing debt to improve your credit score in the long term.
T&I Credit Union Personal Loans
At T&I Credit Union, we are eager to help you invest in your future by borrowing today. To find out more or become a member, call us at (248) 397-9456. You’ll gain access to online banking, a financial tracker, and credit score analysis for a complete overview of your financial progress. Get started with your personal loan application today.