If you are strapped for cash and need to borrow some money, you are in luck. There is no shortage of banks, credit unions, and financial institutions competing to lend us money. Our very way of life is dictated by these financial players, based on patterns of consumption and expenditure, credit, and debt. You may think of debt as ‘evil,’ but it plays an essential role in our economy. The amount of world debt far outweighs the world’s credit, meaning more people are getting what they want now, and paying for it later.
So, is taking out a personal loan a good idea? In some cases, it can be. In most circumstances, it is wiser just to wait, save up your money, and make a purchase when you have the funds. Depending on your credit score, personal loan interest rates can be pretty attractive to someone who needs funds urgently without loading themselves up on high interest debt. Let’s have a look at six situations in which a personal loan can help you out.
As a homeowner you have probably signed the dotted line on the most significant loan you will ever have. Your home is your most valuable asset, and if something disastrous was to happen, it could be out of action for some time. Small personal loans can help you out of a dire situation such as burst water pipes or collapsed foundations. Being able to perform any repairs as soon as possible prevents any further (costly) damage. If the damage is serious, you may have to find temporary accommodation.
Buying a car
Everyone needs a car; some just need one sooner than others. A secured personal loan is a flexible, low-interest way of getting into your new wheels earlier. A secured loan is offered at a lower rate of interest than an unsecured personal loan as your new vehicle will be put against the loan as collateral. A secured loan is only offered on new cars as their value as collateral is easily evaluated.
What if I don’t want a new car? The second-hand car market is huge, and there are plenty of gems waiting to be discovered. While a personal loan doesn’t represent the best value in terms of interest rates, it gives a second-hand car buyer a big wad of cash. Negotiating the price of a second-hand car is much easier with a big wad of cash.
I often hear the argument that taking out a loan for a holiday is a bad idea. I agree that taking out a loan should be done with care, and if you can afford to save up the money, do that instead. Having said all this, sometimes you just need a holiday. Saving for a long time can be mentally exhausting, especially when you are dreaming of getting away from it all. Life is short so get away, have a good time and pay for it later.
Unexpected medical bills
No one plans on taking a trip to the emergency room. Medical emergencies can be demanding and horrific; no one needs the stress that lack of money brings. Trips to the hospital can add up fast, and if you have to travel away from your home and stay overnight, things could start getting disastrous.
If you or your loved ones are struck by a medical emergency, having a pool of cash can ease the trauma and get everyone back on their feet quicker. Some advisors may suggest health insurance, but many companies have no intention of paying out claims and end up causing more heartache than good. Imagine having to argue with insurance lawyers while you are sick!
Wait, am I suggesting that you get into debt to get out of debt? Sounds whacky, but it’s a very clever strategy that will help you take control of your financial situation. We know that personal loan interest rates vary, depending on your credit score so what about other loans? You might be paying huge amounts of interest and not even realize.
Credit cards are the worst offenders for excessively high-interest rates. By taking out a larger loan and paying off all smaller debts, you are effectively negating those higher interest rate loans and paying one flat repayment. This tactic can even be used to consolidate other personal loans, so don’t be afraid to assess your current loan and its interest rates.
If you already have high levels of debt, being approved for even a small loan may be tricky. Lenders are very competitive, and some would love to take on your debt if it means they are getting a good deal. Book a consultation with your lender and discuss your situation; they may be able to tailor a solution for you.
Building a credit score.
Anytime a lender receives a loan application, he or she scurries to their computer and brings up your credit score. Your credit score is a tally of how many debts you have had, whether you paid them off without defaulting and if you have any current debts. A credit score will determine your success for future loans and more importantly, a home loan.
Building respectable a credit score takes years but can be fouled by a handful of failed repayments. Taking out small personal loans and paying them back successfully is an excellent way of rebuilding a bad credit rating or creating a stellar rating from the outset. Building wealth takes a long time, and in today’s world, you need to play by the bank’s rules.
Too many people view personal loans are an accessible way to get what they want now and pay it back later. Making impulse purchases only to pay them back with interest is terrible financial planning and is not sustainable. I like to think of personal loans as a money angel for hire. A loan can get you out of strife, just remember to pay it back!