There are many different types of loans that lenders may offer. Most loans have a specific purpose, like a home mortgage or auto loan. Personal loans, however, are fairly open-ended consumer lending products that can be used for a variety of purposes.
So why would someone take out a personal loan? For starters, let’s better define a personal loan and what makes it unique and versatile.
Personal loans are most commonly unsecured financial products. This means that the money you borrow is not guaranteed by any asset, unlike secured loans (e.g., a mortgage, auto loan) that use the assets as collateral.
Because most personal loans are unsecured, they often have higher interest rates than products like mortgages or auto loans. However, on average, personal loan rates do tend to be lower than those of credit cards.
Interested in an unsecured personal loan to cover a major expense or consolidate high-interest debt? With Fiona, you can compare personalized loan offers from a marketplace of top providers — all in one convenient place.
A personal loan can be used for a wide variety of financial purposes. Here are some of the most common reasons that consumers utilize personal loans.
Home Improvement: Whether you need a new roof, plan to install a pool, or want to completely renovate your house, taking out a personal loan can provide you with the funds necessary for a home improvement project. You can use these funds to pay for supplies, labor, or one big ticket item that requires payment up front.
Medical Expenses: According to the Census Bureau, 19% of US households were unable to afford medical care either before or at the time services were rendered. And of American households with medical debt, the median amount owed is more than $2,000.
A personal loan can be used to pay for any number of medical expenses, from large surgical copays to pricey equipment, and even rehabilitative care needs.
Consolidate Debt: One of the most popular reasons for taking out a personal loan is to consolidate high-interest debt, namely that of credit cards. Consolidating not only simplifies the repayment process — by streamlining all debts into one simplified monthly payment — it can also result in a lower interest rate. By paying less in total interest, borrowers can get out of debt earlier. They can even lower their monthly payment thanks to paying less interest and/or by stretching out their loan term (i.e., repayment period).
Vacation: Whether it’s the trip of a lifetime or just a getaway with the family, vacations can be a hefty expense. Personal loans can be used to cover flights, hotel stays, excursions, event tickets, and meals, and at a likely lower interest rate when compared to using credit cards.
Funeral/Final Expenses: In America, the average funeral costs between $7,000 and $12,000. If your loved one also leaves behind expenses like medical copays or other unpaid balances, you could find yourself looking at tens of thousands of dollars in (often unforeseen) bills. A personal loan can be one way to cover final arrangements, especially if the death was unexpected.
Moving: Whether going near or far, moving expenses can easily cost thousands of dollars. Personal loans can help cover those expenses whether that means paying for new furniture/appliance, trailers/pods, storage unit rentals, vehicle transportation, or hotel stays along the way.
Auto Repairs: Tires, A/C compressor, a new transmission… vehicle repairs are seldom expected, but can throw a serious wrench in your budget, especially if you don’t have any savings available for such an expense. A personal loan can be a quick solution to getting your car fixed and back on the road.
Wedding: While COVID caused the average wedding cost to dip in 2020, it was still just around $19,000. Personal loans are often taken out to cover wedding and even honeymoon expenses, either by the bride and groom themselves or their parents. The loan can be used to cover pricy upfront costs, like booking a venue, caterer, photographer, or music entertainment.
Personal loans can be very versatile financial products, offering funds for a wide range of goals, needs, and personal challenges. These loans may offer access to cash quickly and at a lower interest rate than credit cards or predatory products, but it’s important to know what you can and cannot use these funds toward.
No matter the need, getting matched with personalized loan offers is easier with Fiona. Enter some basic info and you can get pre-approved offers ― with no impact to your credit score.
Disclaimer: The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the suitability of any Even Financial product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional. Any information or statistical data sourced by Even Financial through hyperlinks, from third-party websites, are provided for informational purposes only. While Even Financial finds these sources to be accurate, it does not endorse or guarantee any third-party content.