There may be times when you need a form of financial support that is quick, easy, and flexible. This may be to cover the cost of an emergency expense, pay for a big life event, or may be used to cover the cost of a dream holiday.
Whatever the reason, and wherever you are in the world, near-immediate funds from a personal loan may be the answer.
If you’re looking at personal loans in Houston, TX, or simply want to understand more about when a personal loan may be the best option, this article will help you out.
What Is A Personal Loan?
This is a type of loan or installment credit that provides a short-to-moderate term repayment and flexible use for borrowed money. It’s also a form of quick funding for those moments when you require an immediate cash boost.
Unlike credit cards, personal loans deliver a one-time payment to borrowers. This is then paid back over a set period via regular monthly payments. The repayment term will be agreed upon by the lender and borrower before the money is transferred.
How Does It Work?
Some loans are intended for a specific purpose. For instance, an automobile loan is intended to cover the cost of a car, you can purchase a home with a mortgage, and you can use student loans to cover the cost of college.
With a mortgage or auto loan, your home and car (respectively) will be used as collateral to ensure that the loan is repaid according to the agreed terms.
A personal loan, however, will offer no collateral at all and is often viewed as a good loan for individuals who have bad credit.
It’s unsecured by any type of property which can be seized if you end up defaulting on the loan. Because of this, the lender is taking a much bigger risk by offering the borrower a loan, and will frequently charge higher interest rates than other loan types.
Remember: your total interest rate on a personal loan will be dependent on your credit score and your debt-to-income ratio, among other things.
How Do You Know If A Personal Loan Is Right For You?
If you require a quick cash stream to pay for important or necessary expenses, personal loans may be the best option. They offer lower interest rates than credit cards and can be rewarding, especially if you have a decent credit score.
Remember, taking on a personal loan does not mean you get free money. It is still a type of debt, and you must be ready to take on this responsibility before you sign on the dotted line.
If you do not have any room in your monthly budget to cover costs plus interest, you may want to reconsider the way and amount of money that you borrow.
When Do You Need A Personal Loan?
Personal loans can be used for just about any purpose. Some lenders may inquire about what it is that you plan to do with the money that you want to borrow, whereas others will simply want to ensure that you can afford to repay it.
They’re not inexpensive by any means yet they can be an extremely viable option in multiple situations. Here are four instances when you may need a personal loan.
1. Emergency Expenses
If your home requires a new roof due to leakage, or if you need to buy a new washer and dryer, it’s possible to cover these costs using a credit card. However, these types of big repairs can lead to horrible balances that rack up huge interest charges and may even negatively impact your credit score.
The same idea applies to emergency medical expenses. If you have an illness or injury that totals a pretty large sum, it may not be worth putting on your credit card at all as the interest amount will outweigh the cost of your bills.
This is when using a personal loan will help. If you’re accepted for a personal loan, you have easy access to the cash you need. This will help you to manage your expenses to take some pressure off the situation and help you breathe a little easier.
2. Personal Events
If you need to cover the cost of a funeral, wedding, or anniversary bash that turns out to be pretty expensive, personal loans are a great backup option. They give a ready stream of cash to cover the individual vendors and general costs.
Personal loans also mean that you don’t need to deplete your savings to cover the cost of such a big personal event. In the case of a wedding, for example, you have the funds to make your day exactly how you always imagined it to be.
3. Debt Consolidation
This is a common reason for taking out a personal loan. It involves combining multiple outstanding debts into a single monthly payment to one lender which makes the process of paying off your debt much less stressful.
Personal loans offer lower interest rates which means you can easily reduce the amount of interest you must pay, and the time it takes to officially pay off the debt.
4. Home Remodeling
If you’re a homeowner looking to do some work inside your home or need to fix an emergency repair (such as enlisting a professional to fix electrical wiring), a personal loan may be a good fit.
Financing options for these situations often come down to choosing between a home equity line of credit (HELOC), a home equity loan, or a personal loan. Many people opt for the latter as personal loans are unsecured, meaning they do not require the use of the home as any form of collateral.
Summary
Simply put, you may need a personal loan to cover all sorts of costs including emergency medical bills, home remodeling or repair costs, or even a wedding. Whatever you need these funds for, you must remember that your debt needs to be repaid.