Do you have any large expenditures coming up soon in your life? Perhaps you have been considering a large, extravagant wedding, or you are looking to take a nice vacation. Often times, we can afford these things in the long term, but the exorbitant fees that exist for the initial deposits are a significant barrier to us.
If you did not already know, this is where something like a personal loan can really come in handy. Admittedly, in terms of the types of loans that we see get a lot of media coverage, these are probably not a type that get too much positive press. Why is that, though?
Perhaps it is that they got a bit of a bad reputation during the height of the covid 19 pandemic – at that time, it seemed like the only stories we heard about them were negative ones. However, now that we are a few years removed from that time, I think that it is high time to examine personal loans in a different light.
Today, I will be doing just that – we can take a look at what they are, how they work, and even what we can utilize them for! If any of that sounds interesting to you, do be sure to stick around and keep reading – you just might learn something new!
What is a Personal Loan?
Starting off at the beginning, let us discuss what personal loans are in the first place. They fall under the umbrella term of “consumer” loans, but they are rather different than the other ones that land in that category. How so? Well, allow me a moment to explain.
To put it in simple terms, a personal loan is a credit agreement that a consumer makes with a financial institution (be that a credit union, a bank, or an online lender). The funds that are dispersed are agreed upon in the initial contract and there will be an interest rate set. They are able to be used on a lot more things than other types of consumer loans considering they are not for a rigid, dedicated purpose.
When we take a moment to think about the other types of consumer loans, it is clear that this kind is the most flexible. After all, a mortgage can only be used for one purpose: to purchase a house. The same can be said for auto loans and vehicles. Student loans, of course, can only be utilized for scholastic purposes.
With personal ones, though, this is simply not the case. I will elaborate on this further in another section in regard to what you can spend the funds on, but keep it in the back of your mind as you proceed. Basically, they are credit agreements that are flexible in nature and can serve a variety of functions.
How do They Work?
Now that you know what they are, we can delve into our next question. You can find some examples of them on this page, billigsteforbrukslån.com/, though there are plenty of other ones to check out. I simply wanted to provide some alternative perspectives, since I do not think most Americans would find something like that on their own! Foreign banks have plenty to bring to the table.
As with most similar types of credit agreements, the first step is going to be to submit an application to the lender that you are interested in working with. You will want to take a few things into consideration as you do so, the first of which being your current personal credit score.
For anyone who was not already aware, these scores are on a bit of a scale, going from poor at the worst end of the spectrum and great at the best end. Numerically, the range is from about five hundred to eight hundred and fifty. Your current score is going to play a part in what loans that you are approved for as well as the interest rates that you will be paying, so arming yourself with that information beforehand can be a big boon. It lets you know what to expect at least to some extent.
Once you have been approved, there are a few other moving parts that you will want to be cognizant of. Monthly payments are a huge one, considering that you will need to make these on time and in full with each month that passes. As you do so, you will be improving your credit score as well, so it is a bit of a win-win in that sense.
Beyond that, take into account what the timeline is in terms of how long you will be making repayments on your personal loan. Typically, this is agreed to in the initial contract. Still, just keep track of this and understand that there are likely going to be fees if you try to pay it off earlier than agreed upon with your lender.
What Can You Use Them for?
With some of those more complex aspects of this topic out of the way, we can turn out attention to the much more fun part of this article – what we can use personal loans for. As I hinted at in the previous sections, to some extent here the sky will be the limit (or, more realistically, your own imagination).
Obviously, there will be some stipulations to what you can spend the money on. For example, you probably cannot go out and buy a bunch of illegal drugs with it. While this might be a bit of a hyperbolic example, I use it to demonstrate just how flexible these credit agreements really can be!
What are the most popular reasons to take out a personal loan? Weddings are probably the biggest one, which I did briefly mention in the introduction today. However, I think it is worth highlighting them again for a few reasons. When you think about it, it is pretty hard to deny how expensive that a large and extravagant wedding can turn out to be.
Surprisingly, though, some of the most difficult things to pay for often require pricey deposits that are a challenge to collect up front. Naturally, this is what most folks planning large events like these do with the funds from a personal loan that they took out with this intent.
Shifting our attention to some of the other uses, though, one that may come as a surprise is debt consolidation. I find that many folks find this quite a counterintuitive concept in general – how does it make any sense to borrow more money in order to consolidate your current debts, right? A lot of it really does come down to interest rates – anyone looking to lower what they are currently paying on their debts may want to check into debt consolidation as an option.
Home renovations are another big one here, and there are a few factors at play that make this the case. House flippers will utilize personal loans to quickly make much-needed updates to a fixer upper style home and then list it on the market again to make a profit. They can pay off the loans fairly easily in the process of doing so.
However, you definitely do not have to be planning to sell your property to take out a personal loan to make improvements. Again, for those larger projects, we might be able to afford them minus those difficult down payments.
As you can see, these versatile credit agreements can have a variety of functions for the individuals who are borrowing in this manner. While it might seem like a somewhat risky thing to embark upon, hopefully this guide has allowed you a bit of a different perspective on personal loans and how they are not actually predatory!