What Are the Common Uses for Personal Loans?
If you need cash today but you don’t have enough built up in savings to cover the purchase, a personal loan might make sense for you. Unlike a mortgage or other collateralized loans, personal loans are unsecured, meaning that borrowers do not need to provide collateral for the loan. In other words, the only asset behind a personal loan is the borrower’s promise to repay. As a result, borrowers need a good credit history or strong prior history with the lender in order to qualify for a loan. Personal loans can be used for just about anything (that’s legal, of course), but here are some of the most common uses we see at SoFi.
Most Common Personal Loan Uses
Debt Management and Consolidation
Consolidating or refinancing high-interest debt is one of the most common uses for a new personal loan. Interest rates on credit card debt are some of the highest rates a borrower can have, with average APRs between 15-20% as of this writing. In addition, credit cards almost always have variable rates, making it challenging to create a predictable budget to pay down outstanding debt. Rates on low-interest personal loans can be half the size of credit card APRs, which would save borrowers thousands of dollars in interest payments just by refinancing. The fixed payback timeframe of a personal loan also helps avoid getting into a cycle of debt that can occur with a credit card that has no set time to repay the loan.
Pay for a Wedding
According to The Knot, the average cost of a wedding in the US is about $30,000. Unfortunately, many young couples have not saved up enough to pay for their entire wedding bill themselves, and the days when the bride’s parents footed the entire wedding bill are dwindling. Wedding planning can cause a considerable amount of stress for couples—band or DJ? beige or taupe napkins? family-style or plated meal?—and financing shouldn’t contribute to that stress. A low-interest personal loan to cover all or a portion of a well-budgeted wedding can free up young couples to focus on what matters—like seating charts.
Pay for Medical Expenses
According to a recent Deloitte study, nearly a quarter of Americans with employer-based health insurance have a high deductible plan. With those plans, family out of pocket maximums can run up to $13,100 per year. When an unexpected medical emergency occurs, you want to focus on your health, but you also can’t ignore the financial burden. Being able to pay for the out of pocket expenses with a low rate personal loan can relieve some stress to let you focus on what’s important.
Beyond insurance deductibles, many elective medical procedures aren’t even covered by insurance. In vitro fertilization is gaining in popularity yet isn’t typically covered by insurance. According to the American Society for Reproductive Medicine, a cycle of IVF can cost $12,400 on average, and it may take several cycles before success hits.
Pay for Moving Expenses
According to the American Moving & Storage Association, an in-state move will set you back about $1,170 on average. Moving out of state? You’ll spend an average of $5,630. These figures only account for the move. Anyone who has moved knows: additional hidden costs associated with moving out can pop up every day—storage, boxes, cleaning fees, partial security deposit returns, just to name a few.
But those are just the cost of moving out of your old place. Most new rentals require up-front cash for a deposit. Opening new utility accounts can also come with a deposit. Replacing household items that you didn’t move such as soap, light bulbs and ketchup can easily total a few hundred dollars. Lastly, miscellaneous costs may arise during the move, such as replacing broken items. Even if you have insurance, there’s a deductible to pay. A low-interest personal loan can help movers defray the out of pocket costs associated with moving.
Pay for a Funeral
You have life insurance for your own funeral, but what if mom, dad or grandpa didn’t plan ahead? With an aging US population, the costs of death are increasingly being passed onto children of the deceased. Costs can escalate pretty quickly in this time of mourning. Basic costs include the funeral service and the burial or cremation and any gathering of friends and family surrounding the memorial. A modest funeral costs between $5,000 and $10,000, and a cremation may cost a few thousand dollars. If the deceased did not plan appropriately to finance his or her death, and life insurance doesn’t cover the bill, a personal loan may be a quick, easy solution for the family.
Pay for a Home Improvement Project
Many renters and homeowners feel that annual or bi-annual itch to spruce up their living spaces. This might mean a fresh coat of paint, a new piece of art, upgraded appliances or a replacement of that old, saggy mattress and dingy sheets. Depending on the level of your upgrade, these improvements can come in anywhere between a few hundred to tens of thousands of dollars. Feeling comfortable in your own living space can improve happiness, productivity and self confidence. And, certain types of remodels, like replacing old windows and doors, can boost the value of your home. Using a personal loan to fund home improvement projects is a great way to focus the renovation instead of keeping up with the costs.
Deciding to Take Out a Personal Loan
Planning is essential when taking out a personal loan. Before taking out a personal loan for the reasons detailed above or any other reason, it is important to set a realistic budget for that expense (don’t forget about hidden costs!), as well as for ongoing repayment. When setting up your budget, check out our personal loan calculator to help you get more detailed about rates, future payments and size of loan you can afford.
To learn more about how a personal loan can help improve your financial situation, check your own rate for a SoFi Personal Loan.