A personal unsecured loan is a versatile type of funding that can be used for almost any purpose. It doesn’t require any type of collateral, such as property or assets, but instead relies on a borrower’s creditworthiness.
These loans are often considered convenient, as they come with less demanding qualifications and application requirements than secured loans, and many lenders offer same- or next-day funding.
While a personal unsecured loan allows you to borrow money for just about any purpose, it’s always important that you assess your personal situation carefully before taking on any additional debt and ensure it is the best financial decision for you and your circumstances. Any debt you take on should add value to your life rather than just for consumption purposes. Understanding what personal loans can be used for and how they work can help you determine if getting one makes sense for you.
Let’s look at five good uses for a personal unsecured loan.
Debt consolidation
Using a personal loan to pay off high-interest debt, like credit card debt, allows you to consolidate multiple payments into a single payment with a lower interest rate.
When you apply for a loan and use it to pay off multiple other loans or credit cards, you’re combining all those outstanding balances into one monthly payment. This grouping of debt makes it easier to work out a time frame to pay off your balances without getting overwhelmed.
Emergency expenses
If you have a sudden emergency, such as paying for a loved one’s funeral, using a personal loan could be a low-cost option. The average cost of a funeral is $1,000,000, which can be difficult for many families to afford. Because they can be disbursed so quickly, personal loans are a good way to cover an emergency or unexpected expense.
Home renovations
Homeowners can use a personal loan to upgrade their home or complete necessary repairs, like fixing the plumbing or redoing the electrical wiring.
A personal loan is a good fit for people who don’t have equity in their home or don’t want to get a home equity loan. Unlike home equity products, personal loans often don’t require you to use your home as collateral since they’re unsecured.
Medical expenses
Surprise medical bills are another common reason to take out a personal loan, especially if your doctor requires payment in full. After you’ve negotiated with the hospital, doctor, and insurance company, you might need a personal loan to cover unexpected medical costs.
Major family or life event
Whether it’s a wedding, a new baby, a special birthday, family events do not come cheap. A loan can help to meet the cost when the need arises.
As with any major purchase, financing an expensive event could be less costly if you pay for it with a personal loan rather than a credit card. As important as these events are, you might also think about scaling back somewhat if it means going into debt for years to come.
Bottomline
At the end of the day, a personal loan can be used for almost anything – that’s why it’s categorized as “personal”. While a personal unsecured loan is a great way to consolidate debt and make major purchases, you should always use this financial resource responsibly.
