Top 5 Reasons to Get a Personal Loan

• Fixed interest rates and monthly payments. One of the biggest benefits of a personal loan is the predictability. With a fixed interest rate, you’ll know exactly how much you’ll pay each month for the life of the loan. Unlike credit cards where interest rates can change and payments can fluctuate, personal loans give you a clear structure for repayment, making it easier to budget.

• Loan terms. Personal loans have repayment terms from 1 to 7 years, depending on the loan amount and lender. Shorter terms mean higher monthly payments but lower total interest over the life of the loan, while longer terms mean lower monthly payments but higher total interest.

• Interest rates. Interest rates for personal loans can range from 4.99% to 36% depending on your credit score and financial history. Those with great credit can get loans at lower rates, while those with bad credit may get higher rates because lenders perceive them as higher risk.

• Fees. In addition to interest rates, personal loans may have fees like origination fees, late payment fees, and prepayment penalties. These fees vary from lender to lender, so make sure to read the fine print before signing.

• Credit score and creditworthiness. Your credit score plays a big role in the approval process and the loan terms. Lenders use your credit score to determine how likely you are to repay the loan. Those with higher credit scores get lower interest rates and better terms, while those with lower scores may get higher rates or get denied.

• Secured vs unsecured loans. While most personal loans are unsecured, some lenders offer secured loans where you may need to provide collateral (like a savings account or property) to back the loan. Secured loans usually have lower interest rates because the lender has less risk, but the borrower risks losing their collateral if they default.

• Overview. Debt consolidation combines multiple debts into one loan with a lower overall interest rate. This can include high-interest debts (like credit cards) and other loans, as long as the consolidated loan has better terms. Consolidation usually has fixed repayment terms, making monthly payments more predictable and manageable. A higher credit score is often required to get the best rates.

• When it’s worth. Debt consolidation is good when you want to simplify multiple payments, reduce interest costs, and create a more manageable repayment schedule. It’s especially good when consolidating high-interest debts into one loan with a lower rate.

• When it’s not worth. If the new loan has high fees or a much longer repayment term, you’ll end up paying more over time even with a lower interest rate. If your credit score is bad, the loan offer won’t give you many savings compared to your existing debts.

• Overview. A personal loan is a great way to fund big purchases like home renovations, buying a car, or even a wedding. Personal loans have fixed interest rates, predictable monthly payments, and repayment terms from 1 to 7 years. This makes it a manageable way to fund big purchases without using savings or high-interest credit cards.

• When it’s worth. A personal loan for big purchases is good when you want to spread the cost over time without using high-interest credit cards or dipping into savings. It’s also good when you don’t want to use a home equity loan or mortgage for non-property-related expenses. Personal loans have lower interest rates than credit cards and are easier to manage with fixed monthly payments.

• When it’s not worth. If you can afford the big purchase without taking on new debt, using savings is often cheaper than borrowing. If you have a bad credit score, the interest rates on personal loans may be higher than other financing options, so it’s not as good as using a credit card with 0% introductory APR.

• Overview. Personal loans can be an option for covering unexpected medical expenses, which can be big and unavoidable. Whether for emergency procedures, surgeries or ongoing treatments, a personal loan gives you instant access to funds. For those without health insurance or those with medical bills not covered by insurance, a personal loan can help manage costs.

• When it’s worth. A personal loan is good when you have big medical expenses that need to be paid quickly. It’s an alternative to using high-interest credit cards, which can lead to a debt spiral. Personal loans with lower interest rates can help reduce the financial burden of medical debt, especially for those without insurance or for uncovered medical procedures.

• When it’s not worth. If you already have high debt, taking on more medical debt may not be advisable. If you can get a medical payment plan directly from your healthcare provider, it may be better than taking out a personal loan. Be mindful of the hidden fees or high interest rates that can make a personal loan more expensive than other financing options.

• Overview. Federal student loans are usually the best option for education financing, but personal loans can be an alternative if you don’t qualify for them. Personal loans for education can cover tuition fees, books, or other school-related expenses.

• When it’s worth. A personal loan for education might be an option when federal loans or scholarships are not enough to cover all expenses, or if you don’t qualify for federal student loans. It can be used to bridge the gap for private institutions, specialized courses or graduate programs. It’s good for those who need immediate funds, but be mindful of the total cost of the loan, including interest rates and repayment terms.

• When it’s not worth. If you are eligible for federal student loans, you should prioritize them as they usually have lower interest rates, better repayment terms, and other borrower protections. Always compare interest rates, fees, and repayment options before committing to a personal loan for education.

• Overview. Personal loans are used to cover emergency expenses that arise unexpectedly, such as urgent home repairs or unforeseen travel costs. They give you instant access to funds, usually with a simple application process. Since personal loans are lump sum payments, you can handle big, urgent expenses without having to save up first.

• When it’s worth. A personal loan for emergencies is good when you need instant access to funds and don’t have the savings to cover the expense. It’s good when credit cards are not an option due to high interest rates or when you need more manageable, structured payments over time.

• When it’s not worth. If the emergency loan has high fees, high interest rates, or a long repayment period, it might end up costing more than other options like using a credit card or tapping into emergency savings. Always consider the total cost of borrowing and compare it with your available financial options.

A personal loan is not a good idea when used for non-essential purchases like luxury items, as it will result in unnecessary debt. Taking out a loan for ongoing expenses or to consolidate low-interest debts may not be beneficial, as the cost of borrowing will outweigh the savings. If you have low credit score, you will have high interest rates and the loan will be expensive. In this case, credit counseling or negotiating with creditors might be a better option. Always make sure the loan purpose aligns with your financial goals and that you can afford the payments.

A personal loan is good for consolidating high-interest debts into one loan with a lower rate, simplifying payments, and saving on interest. It can also finance large planned expenses like home improvements or medical bills when savings are not enough. Personal loans are for those who don’t qualify for other types of financing like home equity loans or federal student loans. When used wisely, a personal loan can help you achieve your financial goals as long as you can pay the loan on time to avoid extra fees and interest.