If you've ever found yourself a bit short on cash, you may have strongly considered taking out a personal loan.
What can you use a personal loan for? Anything. As the name suggests, personal loans aren't given for any specific purpose or with any contingencies attached – they're for people who need money immediately for any general expense purchases. So if there's that sweet set of bagpipes you've been eyeing, or that 10lb pack of Q-Tips that's on a two-hour special, you can purchase either with a personal loan without any repercussions.
Your personal hobbies and questionable splurges aside, there're some common reasons that influence people to take out a loan. Whether you didn't know a loan could be used for these things, or it never even occurred to you that a loan could solve a specific problem, hopefully this list of reasons for loans will help you realize just that.
How meta is this: the number one reason people are taking out loans is to, well, pay off other loans. Some people that're already mired in debt will take out additional loans to pay off their previous loan debt, which is debt consolidation. Now, whether this is a good use of a personal loan is highly debatable, but there's no doubt this is one of the popular reasons one would take out a personal loan.
On the one hand, it can be smart to pay off a bunch of different debts – likely with varying rates of interest – in one lump sum, at one time. Plus, you could possibly get a lower interest on that personal loan repayment, meaning you'll spend less money overall. Anyone that can pay off their consolidation loan immediately can consider this alternative method of paying off outstanding debt.
The downside is people in debt have a tendency to stay there. Loan repayments through debt consolidation doesn't solve the glaring problem of getting into debt in the first place. Taking out another personal loan would be a mere Band-Aid to the situation, and won't stop your bleeding debt. Once it's ripped off, it'll hurt.
Buying or Repairing a Car.
When it comes to buying a car, people prefer personal loans for a variety of reasons, and is why it makes our list of common reasons to take out a loan.
You might think car loans are the way to go when buying a vehicle, but they're trickier to secure than you'd expect. While interest rates on car loans are usually lower than personal ones, banks are hesitant to offer them unless you're buying brand new, or new-used. Older vehicles offer less collateral to the lender, so they won’t feel granting a loan will be worthwhile.
Credit through the car financing company is another way to fund the expense, but this can be even more difficult to secure than a regular car loan, plus these rates trend higher. Leasing is an option, though it's not for everyone.
Personal loans provide buyers with the flexibility to purchase any ride that's caught their eye. There's no extra-tedious process of haggling with dealers (you'll do that enough on the car's price), expediting the car buying process. Loans can also be used for car repairs, particularly for parts your insurance doesn't cover.
Capital For Your Small Business.
Startups and new businesses may have difficulty securing a business loan for a multitude of reasons: a lack of discernable cash flow, no collateral, you're in an unorthodox/niche market, or they won't bother handing out a loan so miniscule.
Personal loans can be used as capital for your business temporarily, allocating the funds as you see fit until your business starts to generate profit. The flexibility and freedom of personal loans means you can use the money on any aspect of your business, for better or worse.
Remember to keep track of personal loan financials vs. business financials. They can get easily jumbled under the same business, so make sure you're keeping them separate.
This next one is absurd, and not recommended to anyone. Of all the reasons to take out a loan, this falls in the lowest tier alongside 'extra gambling money'. Despite how awful of an idea this is, some people take out a loan to build their credit.
Makes no sense, right? Getting into this ridiculous mindset for a second, some people believe that building good credit is all about paying off your bills, and loans, on time. So wise guys will take out loans, without the need for cash, just to pay it off and 'improve their credit'.
This is an epic fail for many reasons. These high-IQ individuals probably forgot about this thing loans come with, called interest, meaning they're losing money for absolutely no reason. There's also the risk of defaulting on the loan, which could crush your credit.
Only borrow money if you really need it, not just for the sake of 'credit'. A strong financial history and credit score can be built without the paperwork of paying off hefty loans.
These are only a few of a handful of reasons to take out a personal loan. A small loan can work wonderfully in these particular cases – besides building credit – while their flexibility allows you to get creative if need be.
If you need a small loan for debt consolidation, your car, or as capital to keep your new business afloat, you may be eligible for a small personal loan courtesy Magical Credit. For more information, call Magical Credit at 855-789-0482 or fill out our online application today.