When is it a good idea to get a personal loan?

One personal loan they can be a viable option in a variety of circumstances. First, let's define a personal loan. Some loans are for a specific purchase. You buy a house with a home loan, buy a car with an auto loan, and pay for college with a student loan.

But a personal loan it can be used for almost anything. Some lenders want to know what you will do with the money they lend you, but as long as it was lent for a responsible and legal reason, you can do whatever you want with it.

But what does that mean to you? With a mortgage, your home is the collateral. Similarly, with an auto loan, the car you buy is the collateral. because a personal loan often unsecured, "unsecured", the interest rate will likely be higher. There are also secured loans if you want to reduce your costs.

Here are five circumstances in which a personal loan it could be a good idea.

1. Consolidate credit cards
If you have one or more credit cards that are maxed out, you may be able to get a personal loan to consolidate all charges into one monthly payment. Which makes this scenario even more appealing: The interest rate on the loan could be considerably lower than the annual percentage rates (APRs) on your credit cards.

2. Refinance student loans
Student loan refinancing can provide some financial relief. The interest rate on your student loan can be 6.8% or more, depending on the type of loan you have. But you may be able to get a personal loan with a lower interest rate that allows you to pay off your loans faster.

If you use a personal loan to pay off all or part of a student loan, you'll lose the ability to deduct your interest payments (when you file your income taxes) along with the benefits that come with some loans, like forbearance and deferment AND if your balance is considerable, a personal loan probably won't cover it anyway. Think carefully about all the issues before choosing to refinance your student loans.

3. Finance a purchase
Financing a purchase depends on whether it is a desire or a need. If you're going to take out a loan anyway, getting a personal loan and paying the seller in cash might be a better deal than seller financing. However, never make a financing decision on the spot. Ask the seller for an offer and compare it to what you could get. Then you can decide which is the correct option.

4. Pay for a wedding
Any major event, like a wedding, qualifies if you end up putting all the associated charges on your credit card without being able to pay them off in a month. A loan for a large expense like this could save you a considerable amount in interest charges, as long as it has a lower rate than your credit card.

5. Improve your credit
A personal loan You can help your credit score in three ways. If your credit report shows mostly credit card debt, this may help your "account mix." Having different types of loans is often good for your score.

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