Personal loans are unsecured lines of credit that consumers take out to pay expenses not typically covered by other kinds of loans (such as a mortgage loan or an auto loan). These expenses can be carefully-planned expenditures or they can arise out of emergency situations, but the upshot is usually the same: the debtor needs a personal line of credit to cover them and can handle the slightly high rate of interest it takes to get one. Although a personal loan can be used to cover almost any expense you can think of, there are 3 typical ways that consumers use them:
1. Debt Consolidation
The number one use for personal loans is debt consolidation. If you have a large amount of credit card debt, medical debt, or other unsecured debt that is racking up a huge rate of interest, loan consolidation offers the benefit of one monthly payment and usually a much better rate of interest than consumer debt. This can be a huge benefit to consumers who feel they are drowning in debt or have too many payments to keep up with each month.
2. Holidays and Travel
Personal loans are also commonly used to finance holidays and travel. If you are newly engaged and have no idea how you can finance your wedding ceremony, reception, and honeymoon, a personal loan can amply cover all three expenditures. If you have always dreamed of spending a summer in Tuscany, you can get the needed funds to cover your dream vacation. If Christmas is approaching and you don’t have enough saved up for gifts for everyone on your list, a personal loan can make your season merry and bright. These are all items that would cost a fortune if financed with plastic.
3. Boats, Motorcycles, and Other Recreational Vehicles
If you have found the bass boat of your dreams, or if there is a Harley in your neighborhood with a “For Sale” sign, then a personal loan could be your ticket to getting the toys you want. Sometimes you find a bargain that is just too good to pass up, so obtaining a personal line of credit can be the key to getting the right deal at the right time. In that case, a personal loan can actually save you a lot of money in the long run, since you won’t have to pass up a good deal and wait for a once-in-a-lifetime opportunity to come up again.