The best reason to be honest when applying for a personal loan is that it won't benefit you or the lender to lie. Lenders may seem intimidating, but in most cases they want to help you achieve your financial goals. Bankrate has been helping people make smart financial decisions since 1976. Personal loans are borrowed money that can be used for large purchases, debt consolidation, emergency expenses, and more. These loans are repaid in monthly installments over a few months or more than a few years.
The transfer of funds into your bank account can take as little as 24 hours or up to a few weeks, depending on the lender. Debt consolidation is one of the most common reasons for applying for a personal loan. When you apply for a loan and use it to pay off many other loans or credit cards, you combine all of those outstanding balances into one monthly payment. This makes it easier to calculate a deadline for paying your balances without feeling overwhelmed. If you need money for an emergency, using a personal loan instead of a payday loan can save you hundreds of dollars in interest charges. According to the Federal Reserve Bank of St.
Louis, the average APR for a payday loan is 391 percent, while the maximum interest rate for a personal loan is usually 36 percent. Personal loan funds can also help you move your household belongings from one location to another, buy new furniture, transport your vehicle across the country, and cover any additional expenses. Using a personal loan for moving costs can also help you stay afloat if you move to a place without work. Probably the most obvious reason to consider a personal loan is if you are facing a significant unforeseen or emergency expense. Maybe you or a family member has fallen ill or suffered serious injuries, and you are facing medical bills beyond what you can afford. Maybe one of the parents passed away recently and you are planning his funeral.
Maybe a storm damaged your home and you need a loan to pay for what insurance doesn't cover. These situations are difficult to plan for, making paying the associated expenses a considerable burden. A personal loan can be used as a form of debt consolidation, especially with credit card debt. It's also a popular reason people apply for a personal loan because personal loans charge lower interest rates compared to credit cards, especially if you have good credit. The best personal loans charge an interest rate of 4%, well below the double-digit rates charged by most credit cards. You can apply for a personal loan, settle the balance of your outstanding credit cards, and then make a payment to your new personal loan servicer. If you're moving close to where you live now, you may not need to cover any major expenses.
But if you're moving out of state, you may need additional money to pay for moving costs. Moving far away means covering the cost of packing your belongings, possibly hiring removals and transporting your things to your new location. Loan applications ask for your annual income and you can include money earned in part-time work. Consider increasing your income by starting a secondary activity or working towards an increase in your full-time job.
Instead of using the money from your personal loan on luxury items like entertainment systems or cars, use it on necessary expenses like medical bills or moving costs. Your score may drop again after your personal loan has been issued but it will recover quickly as long as you keep up with your payments. Personal loans are usually an unsecured type of loan which means that you are not required to provide collateral in case you don't repay the loan. When filling out a loan application, there may be a section that asks about the purpose of the loan.
If you need quick cash flow to pay for necessary expenses, then taking out a personal loan may be a good option. The reason for your loan can be important as many lenders consider this along with your financial situation when making decisions. If you pay off other debts with personal loan money then you'll only have one fixed monthly payment and may be able to save money on interest. A personal loan is also preferable over home equity lines of credit or home equity loans if you have no equity in your home or don't want to get one.
You can take out a personal loan to finance large purchases but that doesn't mean that luxury items should be bought with borrowed money. Auto loans often have lower interest rates and easier qualification requirements than personal loans so they should be considered when buying cars. Homeowners can use personal loans to improve their home or complete necessary repairs like fixing plumbing or rewiring. Personal loans are great ways to consolidate debt and make major purchases but they should only be used when absolutely necessary.