It’s normal to need some extra cash now and then. Be it for emergencies and other financial needs, one of the most common ways of raising money within a short period is through personal loans.
This type of loan is straightforward and can get approved faster than others. It is categorised under unsecured loans, which means it doesn’t require any kind of collateral.
But while there is nothing at stake that the lender can take away in case you can’t repay your personal loan, there are still consequences. For one, you can get a reduced credit score. When you default on your loan, it will be forwarded to a collection agency and significantly affect your ability to take out another loan in the future.
So, even if it is easy to get a personal loan, you need to understand the obligations that come with getting one. Therefore, it’s important to know when exactly you will need one. In this article, we will discuss the right time to get a personal loan and five smart ways to use it:
1. Emergencies
Emergencies are the most common (and most obvious) reasons for personal loans. However, it is also the most difficult to define, as different people may have varying opinions on what situations are considered emergencies.
For many, this is all about needing the money right away – be it for hospital bills, funeral expenses, or major car repairs. Others also believe that past-due mortgage and home utility bills are emergency situations.
However, even those reasons can differ, so you’ll have to take it on a case-to-case basis. To help you out, below are some examples to help you discern when to take out a loan for emergency reasons:
● Medical Bills
This can be quite straightforward, so you should not have any problem deciding whether to take out a loan. Of course, this doesn’t necessarily mean you can only take out a personal loan when someone is sick. It can also be for comprehensive check-ups that could help prevent illness.
The key is to think about what’s essential for you and your family’s health.
● Car Repair and Maintenance
If a vehicle used for work breaks down or would need some major repair work for safety reasons, then it can be considered an emergency expense. However, you must keep in mind that car detailing and other non-essential services don’t count.
● Home Improvement
Several home improvement scenarios deserve to be considered a smart use of personal loans.
First, the approval and credit limit for personal loans depend on your ability to pay the loan back and your credit score. This makes it a great alternative if you don’t have enough equity for your home.
A personal loan is also useful if you don’t want to use your property as collateral. It can also be helpful for its short and fixed repayment term, especially if you have no time to waste and wish to begin the home improvement project immediately.
Ultimately, spending your personal loan for developing your property can be considered smart as it contributes to the increase in your property’s market value. Just make sure you consider the interest rates, repayment terms, and other charges before you go for a loan.
2. Debt Consolidation
Sometimes, you have to borrow cash to straighten out your other debts. In fact, taking out a personal loan is one of the most popular methods people use to consolidate their debts and improve their credit score (more on this later).
This type of loan often carries lower interest rates, especially compared to credit cards. Some personal loans charge as low as 4 per cent in interest, which is quite ideal for people juggling multiple credit lines.
To use this method, simply pay off the outstanding balance on your card using the loan amount. Then, proceed with the repayment of the personal loan while enjoying a lower interest rate.
Of course, some credit cards in Dubai can also help you with this through a bill transfer feature and easy instalment plans.
Besides credit card debt, you can also use personal loans to transfer or “buy-out” loans from other banks to another with more competitive rates and a flexible repayment scheme. You just have to keep your eyes peeled and stay on top of your finances.
3. Credit Score Improvement
Your credit score will determine whether financial institutions will lend you money. This means if you have a good standing, you’ll be able to take out loans and get credit cards faster and easier.
How you use your loans and whether you are able to repay it on time determine your credit score. This is why some people use personal loans to get a credit score boost.
As mentioned earlier, this type of loan can help you consolidate your debts. When you reduce your balances significantly within a shorter period, you can show that you’re a good payor and, therefore, garner a better score from credit authorities.
4. Investment
Borrowing money comes with risks, but if you’re doing it for the right reasons, it can help you achieve financial freedom.
Sometimes, opportunities come in the most unexpected time. When this happens, and you don’t have any money to invest, you may be tempted to just let the chance pass.
Here’s an expert tip: Don’t.
Doors don’t always open for you. So when they do, you have to put at least one foot inside the door. Personal loans can help you do this.
Use loans to advance the money you require for an investment opportunity. Whether it’s a business expansion to increase profits or a home renovation to boost property value during a real estate sale, don’t hesitate.
As long as you calculate the risks and weigh them alongside the potential returns, you should be able to make the right choice.
5. Reach Milestones
Personal loans aren’t just made to straighten out your debt, cover unexpected expenses, or pay for a business expansion – they are also there to help you fulfil your dreams.
Real talk: The sky is not the limit when it comes to how far you can achieve. It often depends the money you have and how you use it.
This is another area where personal loans can assist. Whether you’re aiming to get your master’s degree for a promotion, have a dream wedding, or own your first home, taking out a personal loan affects how well you’ll live through certain stages of life.
After all, a good return on investment isn’t always money. Sometimes, it comes in the form of happiness and fulfilment.
Use Your Loan Wisely
Personal loans are a quick and easy solution to financial woes, especially if you’re in a difficult situation.
However, taking a personal loan is something you shouldn’t take lightly. Consider where you’ll spend it and how you’ll pay it back before you make a decision. And when you do get a personal loan, remember to use it wisely.
