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What are the common uses for Personal Loan?

What are the common uses for Personal Loan-(A)

Whether your personal loan is unsecured or unsecured, it is a source of financing that can be used for virtually anything from debt consolidation to home renovation. For personal loans, the lender gives you a lump sum that you pay with interest in fixed installments, usually between 12 and 60 months.

  1. Refinancing credit card debt

High-interest credit card debt can affect your finances and make it difficult to meet your financial goals. When you have a revolving credit card balance, you pay compound interest on the purchases you have made. This is an expensive way to borrow money.

Personal loans offer fixed monthly payments, which makes them easier to track than variable-rate credit cards. Refinancing credit card debt with a personal loan can save you money with potentially lower fixed APRs and a fixed payment schedule. (The Annual Percentage Rate (APR) is a more accurate measure of your loan costs, as it includes the interest rate plus fees.)

Keep in mind that many personal lenders charge an initial fee that can range from 1% to 8% of the loan amount. This amount can be withdrawn before the cash is paid or it can be added to your balance.

Alternatively, front-line borrowers with good to excellent credit scores might consider consolidating their credit card debt using a balance transfer credit card with a 0% introductory period. Avoid paying interest during the introductory phase, which can last up to 20 months. If your balance is not returned at the end of this period, interest will be charged on the remaining balance. You can also expect to pay a 3% to 5% transfer fee when you transfer your old credit card debt to a new one.

  1. Consolidate different types of debt

Personal loans can be used to bundle various types of debt into one fixed monthly payment. Consolidation is easy too – you get a new loan and use the money to pay off your old debts. From there, you make your new loan payments.

Consolidation makes it easy for you to keep track of your bills and pay your debts on a set schedule. The biggest benefit of debt consolidation is the potential cost savings – a personal loan can get lower APRs than other types of debt, which means more of your payments go to your bank. Primary credit in lieu of fees.

Be aware that some of your current debt may have a lower annual interest rate than a personal loan. The annual percentage rate for personal loans can be in the triple digits depending on the lender and the loan. Plus, the cost of getting personal loans can outweigh the savings. It’s important to do the numbers with a debt consolidation calculator to see if you can save money by consolidating your debts with a personal loan.

  1. Financing the home renovation

Home renovations can add value to your home and make it a better place to live. There are many ways to finance home improvement projects, including personal loans and home equity loans.

The main benefit of renovating your home with an unsecured personal loan is that you do not need to secure the loan with collateral. For a home equity loan or home equity line of credit (HELOC), your home must be used as collateral. If you do not repay the loan, you will lose your house to the bank.

However, the cost of loans is generally higher for personal loans than for home equity loans and HELOCs. The APRs for unsecured personal loans are typically higher than the APRs for home equity loans, which means you’ll pay more money for your home renovations over the life of the loan.

  1. Make a bigger purchase

Since almost anything can be paid for with personal loans, some consumers use them to make larger purchases. The best way to pay for a large diverse purchase is to budget for it and pay cash. However, this is not always possible in an emergency, eg. Eg B. if a device suddenly fails.

If you need to buy something right away and haven’t saved, a personal loan can help you make ends meet. Just make sure you can afford the monthly loan payments before you commit.

  1. Buying a car or refinancing a car loan

While it is possible to use a personal loan to pay for a car, it does not have as many advantages over car loans. Auto loans tend to have a lower annual percentage rate and are easier to qualify for than unsecured personal loans. The downside to auto loans is that you have to put your car as collateral, which means your car can be repossessed if the loan doesn’t work out.

If you want to refinance your existing car loan in better condition, a personal loan may be a good option depending on your credit. Borrowers with good to excellent credit who qualify for a lower APR on a personal loan than their current auto loan would save money over the life of the loan and be able to pay off the debt sooner. However, most borrowers are not eligible for a lower APR on a personal loan than on a car loan.

  1. Pay medical bills

Medical bills can appear suddenly, pile up, and be difficult to pay. You can use a medical loan to help pay for these costs. However, you must first research your other options.

Medical billing offices are used to working with consumers to cover the cost of medical care. You can often negotiate your bills or get an interest-free payment plan with your doctor. There are also specially funded medical credit cards that allow you to pay medical bills within a specified period of time without interest; just be careful with costs like deferred interest.



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