So how, and for what, can personal loans be used? The answer to that question is. sort of personal. In other words, borrowers can use a personal loan for almost any particular, personal need they have.
Reasons to Take Out a Personal Loan
In the past, a personal loan was commonly used for large purchases like home appliances. These days, while such purchases can be too large to be covered by one month's paycheck, they still may be paid off quickly, courtesy of favorable financing options and the ability to spread out payments via a credit card purchase. A personal loan, therefore, is usually reserved for needs such as:
- Debt consolidation -- If a secured loan cannot be obtained, a personal loan can be usually be used to consolidate debt at a lower interest rate than credit cards generally carry.
- A wedding -- With the average price of a wedding clocking in at $30,000, many parents and/or couples take out a personal loan to pay for the nuptials.
- A special vacation -- Sometimes a big vacation can be paid for through a personal loan. which can reduce the cost of time away in the long run vs. using a credit card.
Note: LendingTree does not recommend taking out long-term fiancing for short-term needs. However, consumers determined to finance a short-term need might be better served by a personal loan than another option like a credit card.
Combining with Credit Cards
One reason to use a personal loan is to take advantage of certain benefits offered by credit card companies and retailers. For example, individuals desiring
to pay down their credit card balances might transfer them to an account with a zero percent rate for up to 18 months and pay off as much as possible during that time. At the end of that 18 months, though, the rate increases. Paying off the remaining balance with a lower-interest personal loan could be a smart choice.
Some retailers, usually furniture companies, offer zero percent financing for a limited time, but if the balance isn't repaid on time, interest kicks in. Some even make the interest retroactive, charging it from the date of purchase. Consumers can side-step this by transferring the balance to a personal loan fore the deadline.
Other consumers use their credit cards to charge high-dollar purchases to take advantages of their rewards programs. However, interest rates for rewards cards run higher than those of other cards, so some prefer to pay off the balance with a personal loan. -- getting the goodies but not the higher rate.
Personal loans have a couple of advantages -- they don't require collateral, so those without home equity to tap an take advantage of them. Their interest rates are lower than those of credit cards for comparable customers. They can be discharged in a bankruptcy proceeding. Perhaps most important, personal loans usually come with fixed rates and payments, making budgeting easier.
Shopping around for a low rate is highly recommended. At LendingTree. borrowers can fill out one simple form for a personal loan and receive offers from up to four different lenders. It is an easy way for personal-loan "shoppers" to compare rates and find the best deal -- for them, personally.