When Are Personal Loans A Good Idea?

Let’s face it – at one time or the other during our lifetime; we will be hard-pressed for money. Whether it is to pay the rent of the house you live in, pay the medical bills for grandma’s knee surgery, or to see yourself graduated with a degree – we will be in need of money that we do not have. These situations can get pretty overwhelming, pretty quick, and we will most often be left confused with what to do.

Situations that leave us financially challenged can get very stressful

At first, you might approach your friends or a family member to help you out in this time of need. You promise you will pay them back in time. If you are lucky, you have at least one person around you who is rich enough to give you the financial assistance you need.

But sometimes, even your closest friends and relatives cannot help you out, because they simply cannot afford it themselves. In this case, with your Grandma in the hospital in Texas and the rest of your family distributed in various other states throughout America, you are likely to be tempted to run a Google search for loans in Amarillo TX.

When you think about getting a loan, it strikes instant fear into your heart. You at once begin thinking of how you could repay it, and the consequences of becoming a defaulter. In addition to all of this, you are also continually worrying about the extra amount you will have to pay as interest in exchange of getting a big wad of cash when you need it the most.

Pros and cons of personal loans

Unlike other loans such as a mortgage or an auto loan, a personal loan leaves the lender unsecured. This means that there is no collateral for a personal loan. While this translates to you not losing your home or your car in case you are unable to pay back the loan on time, it also means that there will be a higher interest rate being charged monthly.

Furthermore, an advantage to personal loans is that you are not bound to use it for any specific purpose. As long as your reason to use it is legal and responsible, you can take out a personal loan for just about anything. This means that your personal loan is an answer to all your own problems.

Even though taking out loans means you will be paying more than what you borrowed because of the interest, sometimes, taking out a personal loan can be the smart thing to do. It brings you closer to your goals, helps you to get out of tricky circumstances, and may lead to a lot of new opportunities for growth and progress in the future.

In the following paragraphs, we will discuss some of the occasions where taking out a personal loan is the smart move.  

1. Paying off your credit card debts

Having bad credit can deter you from a myriad of different endeavors that you wish to pursue. You might be turned down from getting a home in the neighborhood of your choice, rejected by companies to back up your perfect business plan, having to pay securely on your utilities, and even getting turned away from employment opportunities.

Having all of these problems result in you losing even more money and, in short, this is one vicious cycle you would not want to be stuck in. Hence, if you have a credit card, you must pay off the bill as soon as it comes.

Furthermore, credit card defaulters are often charged very high-interest rates – usually much higher than even a personal loan! If this is the case with you, taking out a personal loan to pay off this rapidly accumulating debt is the financially smarter option.

2. Adding value to your real estate for a higher profit when you sell it off

If you are about to sell your old house, you might want to consider renovating it first. A home that has recently been restored will obviously sell for a much higher price in the market. This means that it will turn a higher profit if you invest in its restoration than the money it will bring if you opt it as is.

However, having no money to invest in the cause can often be a problem. This is another case where getting a personal loan can be helpful, and the smart thing to do. Simply apply for the loan, refurbish the property, sell it off for a high price, and then use the profit you earned to pay back the initial investment. Genius, isn’t it?

3. Accumulating capital for your own, new business

One thing for which many people opt for personal loans is when they are trying to build something – like a career or a new business. When you are creating prospects for yourself, taking out a loan to get started seems very reasonable and responsible.

Many would consider it as just another investment that they would pay off through the money they earn through the venture in the future. If you have a kickass business idea that is guaranteed to give high returns on your investment but have no money to cover the initial costs, why not finance it with a personal loan?

4. Paying for unexpected medical bills

Last but not least, paying unexpected medical bills is another case in which personal loans can be used smartly. Though it is always recommended to stash away some money to act as security on a rainy day, you never really know when, and how much, you will need. When you are struck by an unfortunate event, you just have to what you have to do.

This is especially true when you do not have insurance, or if your claim is denied by the insurance company. Maybe it was you who got distracted while driving and crashed into a tree. To pay for your medical bills, you might want to consider a personal loan.

The bottom line

In situations like these where unexpected expenses come up, you will be caught between a rock and a hard place. You most certainly cannot put off paying rent or getting grandma her surgery, and you definitely do not want to drop out of college because you cannot afford it. At the same time, you have no money to take care of these demanding circumstances. How can you get yourself out of a situation this sticky?

Would you ever consider opting for a personal loan? How do you manage your finances? What do you do when you are faced with an unexpected situation that demands more money than you have saved working your job? Comment down below and share your insights into money management.

Evie harrison is a blogger by choice.  She loves to discover the world around her. She likes to share her discoveries, experiences and express herself through her blogs. Find her on Twitter:@iamevieharrison

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