Personal loans are expensive because they provide unsecured credit that must be repaid along with interest in equal instalments. Many people seek loans to provide immediate financial aid for their urgent financial needs.
A personal loan, unlike other loans such as a home loan or car loan, can be used for any purpose. However, some personal loans are more financially sound than others.
These are five scenarios where a personal loan is a smart decision.
1. If you are looking to renovate your house
It is financially feasible to take out a personal loan to renovate your home or make it more livable.
* Your house is an asset that appreciates in value.
* Additional expenses such as woodwork, bathroom fittings or the cost of remodelling a room might not be covered by your home loan.
* You can keep at least some money in your savings account
2. If you are looking to advance your career
If you are unable to afford tuition, it is a smart idea to take out a personal loan.
This is a way to invest in yourself and help you rise up the career ladder faster.
Nevertheless, if your goal is to improve certain professional skills only, you can check out online portals such as udemy.com or LinkedIn Learning, which offer a variety of inexpensive and free courses. They don’t require a loan!
3. How to pay off credit card debt
Personal loans are a great way to pay off your credit card debts which can quickly mount up each month. Because the personal loan interest rate is lower than that of credit cards, many people apply for personal loans to pay off credit card debt.
4. How to pay for your wedding
Weddings can be expensive, especially if you are willing to spend a lot. Many people are now more inclined to take out a personal loan in order to pay for their wedding, reception, and honeymoon.
They do this to ensure they don’t compromise on their special day or any other expenses associated with it, even if they have limited savings. It also reduces their dependence on their parents to finance their weddings.
Here’s a tip: If you don’t have enough savings, it’s OK to finance your wedding with a personal loan. However, you will still need to repay the loan with interest. The key to saving money on your wedding is to budget for every aspect of it. This includes your wedding dress, pre-wedding shoots and gifts as well as the number of guests and reception venue.
5. You move into a new home.
It can be very expensive to move to a new home in the same city or another country with your stuff. Many people use a personal loan to help pay for their moving expenses.
Reach out to potential employers if you are offered a job that requires you to relocate. It’s obvious that long-distance moving of large furniture can be very expensive. Be aware of this.
Other important points
Your credit score will determine how much personal loan you get and what interest rate. Your credit score will improve if your personal loan is paid on time and in full. This could help you qualify for a larger loan, such as a home loan, at a lower interest rate in the future.
Before you apply for a personal loan, here are five things to remember:
* Only take out a personal loan if you absolutely need it.
* Don’t borrow more money simply because you are eligible for a larger loan amount. Stick to your requirements.
* Find out how much your monthly instalments will cost (considering the effective rate of interest, not just the simple interest rate). Only apply for the loan if you are able to pay the monthly instalments
* Compare all personal loan options to find the right one for you
* Do not take out a personal loan to someone else.
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