Written by: Amber Westover | Best Company Editorial Team
Last Updated: March 6th, 2020
A study conducted by WisePiggy.com in 2016 discovered that 15 percent of Americans have no cash savings. About one-third of participants reported having only enough cash savings to cover a mere three months of living expenses. These numbers explain the growing popularity of personal loans and why many companies are advertising this type of loan.
Personal loans are unique in offering borrowers flexibility. Some companies set restrictions, such as prohibiting the use of the loan for educational expenses; however, most personal loans may be used at the discretion of the borrower. With this level of freedom, the possibilities are endless. Here are some of the most common uses for a personal loan:
1. Credit Card Debt
One of the most common, and arguably wisest, uses for a personal loan is credit card debt consolidation. Americans owe over $1 trillion in credit card debt, creating an average debt of $8,301 per household. Consumers who only pay the minimum balance on their credit cards risk dragging out their debt indefinitely. In addition, many credit cards have higher APRs than personal loans. A personal loan may be especially beneficial for people with multiple credit card bills. Consolidating all your debts into one monthly payment, with a specified term length, can give you more control over your debt. Moreover, opening a new line of credit and paying off current debt can help raise your credit score.
2. Home Repairs and Improvement
Life is full of the unexpected. Homeowners cannot predict damage due to the elements. Flooded basements and other major damages demand immediate attention. In addition, consumers may need more space to accommodate a growing family. Upgrades, re-landscaping, and other renovations can add value to your home. Personal loans may be a quick and affordable way to cover these type of expenses, especially for consumers with good credit scores.
3. Educational Expenses
There are many great options for student loans; however, every college student knows that educational expenses extend beyond tuition. Depending on the amount and limits of your student loan, you may need additional funds to cover textbooks, housing, and living expenses while at school. Personal loans may help students cover these additional expenses.
4. Starting a Business
Many companies and financial institutions provide traditional business loans; however, new entrepreneurs without current revenue may not qualify for this type of loan. Some companies require $50,000 in annual revenue, an impossible task for a new start-up. A personal loan may be a helpful option to finally start your dream business.
5. Medical Expenses
Medical bills for both insured and uninsured patients can quickly add up. The average cost for a trip to the emergency room is $1,233. The uninsured face the worry of drowning in medical bills. Even insured patients are not exempt from high bills, especially patients with high deductible plans. In addition, not all medical procedures are covered by insurance companies. A personal loan may allow you to have elective procedures or pay off already accrued bills.
These top five uses for a personal loan are just some of the many ways you can use this type of loan. Other common uses include vacations, weddings, and a variety of other major purchases. Personal loans are not right for every consumer or every circumstance. However, if you want to consolidate credit card debt, pay for home repairs or improvements, cover educational expenses, start a business, or pay medical bills, check out our top-rated personal loan companies and get started today.