The Best and Worst Ways to Use a Personal Loan

It is not always a bad thing to borrow money and it can actually be very helpful in certain situations. A loan can help you to build your credit, buy something that you need and gives you the freedom to arrange payments that you are able to afford. However, before you take a personal loan, you need to consider what you will be using it for and if it will be beneficial or if it will just leave you in more debt.

The Best Ways to Use a Personal Loan

Debt Consolidation

Debt consolidation is where you move all your debts into one new loan, which means you won’t need to juggle multiple accounts anymore as you just need to focus on the one loan.

You are able to use a personal loan to pay off all your creditors, which will then consolidate your debt and you will only need to pay the personal loan back.

Personal loans will usually have a better interest rate than a credit card and your monthly repayment might be lower because the term of the loan will be longer.

Buying a Home

A personal loan can also be used to help with the purchase of a home. You can use the loan to make the deposit on a house or to help with other expenses like closing costs.

This is seen as a good investment because you will be able to build equity in your home as you make your mortgage payments. Once, you have finished paying the mortgage, your home will become a valuable asset.

Home Maintenance

Your home is a good investment and it is important to protect it and to make sure it stays in good shape. This will include maintenance and repairs for any unexpected problems. If your roof is leaking, for instance, and you are not able to afford it then you can take a personal loan to cover this cost. It will then prevent further damage to your home and the value of your home will go up.

Repairing a Car

A car is another big investment, as it gives you the freedom to go where you need to and will affect your job and your life.

If you need a new car to get to school or to work, then you can use a personal loan to buy a car. You can also use a car loan, which is secured by the car. You should only get a car that is reasonable for your income level.

You can also use a personal loan for car repairs because if you don’t have your car, your job will be affected.

Starting a Business

It can be pretty expensive to start your own business and many of us will not have the funds available to do this, which is where a personal loan comes in. New businesses can be risky, but you are using a personal loan to create a way to make money, which will help you to pay your loan back.

Medical Expenses

Your health is vital and it is a good idea to invest to make sure that you stay healthy. Medical expenses can be extremely high and often your insurance or medical aid won’t cover all of these. If you are struggling to pay your medical bills then you can get a personal loan to pay for them.

All the good ways to use a personal loan involve investing in things that will benefit you in the long term. However, there are bad ways to use a personal loan.

You might be wondering about how you shouldn’t use a personal loan…

Worst Ways to Use a Personal Loan

Holiday

It can be very tempting once you have a personal loan to go away on the holiday of your dreams, but using a personal loan for this, is one way, you can be sure that you will end up in debt.

Using a personal loan to go on a once in a lifetime trip is not a good idea, because when you come back you will need to pay off the loan and this can take years. Is a two-week holiday really worth years of monthly payments?

You should only really take a holiday when you have some extra money to use.

Extravagant Weddings

Another bad way to use a personal loan is to use it for a lavish wedding. There are actually many couples that will go into debt for their wedding day. Getting married should be a memorable experience, but you shouldn’t start on the wrong foot.

Keep your wedding spending in control and don’t feel like you have to go overboard for it, because you will need to pay it back.

If you really want a lavish wedding then you should save for it, instead of going into debt for it.

Holiday Season

The holiday season can be a hot bed for temptation because you want your loved ones to have the best Christmas ever, but don’t fall into the trap. You should not get a personal loan in order to buy gifts, because you will be in debt for the rest of the year.

Gambling

If you are going to go into debt then it needs to have a reliable outcome. You should then not get a personal loan for when the outcome is out of your control like gambling, which is highly unpredictable.

Stock Market

This is also true of the stock market, which is like gambling. The stock market is volatile and you are able to lose everything in a matter of minutes. You may have the funds to invest in the stock market one day, but you should not take a personal loan in order to do it.

Everyday Expenses

If you have bills that are piling up, you need to buy groceries or clothes then you shouldn’t even consider taking a personal loan to pay for these. Instead, you should draw up a budget and see what you are able to cut back on in order to be financially sounder.

Wait…If you want a personal loan there is more to know…

Finding the Right Personal Loan

Check Your Credit Score

The terms that you are able to get for your personal loan will depend on your credit. You will be able to borrow more and pay less for a loan when you have a good credit score. You should then check your credit score before you start shopping for a personal loan.

Compare the Interest

Personal loans have two kinds of interest rates. The first is variable rates, which go up and down depending on the market. A fixed interest will remain the same through the term of the loan, which can help you to budget.

Fees and Penalties

The overall cost of your loan will be affected by the fees and charges. You need to know and calculate origination fees, loan approval fees, prepayment fees and any other fees that the lender charges.

Shop for a Loan

Before you start looking for a personal loan, you need to ensure that the lender you are using is trustworthy. You should look for reviews of the lenders and find out what others are saying.

You should also take the time to compare lenders, so you can find the best personal loan that is available. You are able to find sites that will source the best personal loans for you and allow you to easily compare them.

Personal loans can help in all sorts of situations, but they should only be used on things where you will gain a benefit at the end of it. You should not use a personal loan for careless spending, as this will only create debt and not give you anything valuable in return.

What is a Debt Consolidation Loan?

If you have lots of different debts and you find that you are struggling to keep up with the repayments, then you are able to join them together into just one loan that will lower your monthly repayments.

In essence, you will borrow enough money so that you are able to pay off all your current debts and just owe money to the one lender that will only have one interest rate.

You are able to get a secured debt consolidation loan, which is where the amount that you borrow is against an asset like your home. This would mean that if you are not able to pay the loan back then you will risk losing your home.

An unsecured debt consolidation loan is where the amount that you borrow is not secured against an asset.

How Does a Debt Consolidation Loan Work?

A debt consolidation loan will need you to live modestly and you will have to exercise a great deal of discipline.

The amount that you owe doesn’t change with a debt consolidation loan, it is just able to pay off the debts you have with a new loan that you will need to pay back.

You are then replacing a number of loans with just one loan, that will hopefully have a better interest rate and monthly repayments.

Before, you choose to take a debt consolidation loan, you should look at your ability to repay the loan. You will need to determine how much you can afford to put towards it every month and if you will be paying a secured or an unsecured debt. Debt consolidation loans are generally geared towards unsecured debts like medical bills, credit cards etc.

You might be wondering if there are different types…

Types of Debt Consolidation Loans

There are actually a few different types of loans you can use to consolidate your debt.

Home Equity Loans

This is a loan that is taken out using the equity in your home as collateral. You will need to have a fair amount of equity in your home as well as good credit in order to get this type of loan.

The interest rates on a home equity loan are lower than other types of loans, but the problem is that your home will now be at risk if you can’t afford to pay the loan back.

Credit Card Balance Transfers

A balance transfer involves transferring credit card balances to one credit card that has a lower interest rate. You will find low balance transfer interest rates, which are promotional rates that will come to an end after a certain period of time. If you do choose to transfer your balances then you need to know when the special low rate ends and the normal interest rates come into being.

If you want to use a credit card balance transfer for debt consolidation then the credit card will need to have a large enough credit limit that is able to hold all of your credit card debt.

The problem with this is that your credit score will take a hit and will cause a negative effect.

Personal Loan

You are able to use a personal loan for debt consolidation if you are able to borrow a large enough amount. A personal loan is an unsecured loan that offers fixed payments over a fixed payment term.

Once, you have been approved for a personal loan, you can use it to consolidate your debts. However, if you have a bad credit rating then you will find it difficult to get approved for a personal loan or may have a high interest rate.

Debt Consolidation Loans

You are able to get a debt consolidation loan, which is for the purpose of consolidating your debt. You are able to get this type of loan from a bank and other financial institutions.

A debt consolidation loan will ideally have a lower interest rate than the rates that you are currently paying on all your debts, but be aware that the lower monthly repayments might be because the repayment period is for longer, so you will be in debt for a longer period of time.

Wait…There are few things that you still need to know…

How Does Debt Consolidation Affect My Credit?

You have the opportunity to improve your credit with a debt consolidation loan as long as you use it as a financial plan and not just as a way to shift your debt around.

Once, you have taken out your consolidated loan, you will have paid your multiple debts in full and you can just focus on paying the new single loan.

If you are taking out a debt consolidation loan then we can assume that your credit has taken a hit. Your credit score will not immediately improve and may first take a dip, but once, you start making timely payments on the new loan then you will be creating a positive effect on your credit rating and over time it will improve.

Advantages and Disadvantages of Debt Consolidation

Advantages of Debt Consolidation

With a debt consolidation loan, you will have lower monthly repayments as you are spreading the loan over a longer period of time.

There is also a lower interest rate associated with a debt consolidation loan, so you will have a lower cost of debt overall.

As there are lower repayments, the debt becomes easier to manage. Also, by placing all your debt into one loan, you won’t have to try and juggle multiple payments with different payment amounts, due dates and interest rates.

Disadvantages of Debt Consolidation

If you have secured your debt with a home equity loan or mortgage then you will be risking your home if you fall behind on your payments.

As a debt consolidation loan extends your debt over a longer period of time, your cost of debt will increase.

If you have a bad credit score, then you may need to seek the help of a co-signer in order to get the loan.

Debt consolidation loans shouldn’t be rushed into and you should consider all of your options first. A debt consolidation loan can help if you find you are way in over your head as you will find it a lot easier to pay just one single loan with a lower monthly repayment and a lower interest rate.

What is a Personal Loan and What are the Benefits?

There may come a time in your life where you might need money for one thing or another, whether you have a bill that needs to be paid, you want to pay for car repairs, renovate your house, expand your business and whatever other reasons you may have.

There are a number of ways that you can get the money you need. You can ask family or friends, sell some of your assets or you could take a loan.

There are a number of different types of loans to choose from, but a personal loan is one of the best options.

What is a Personal Loan

A personal loan is a loan that is granted to serve personal needs by a lender or a bank. a personal loan is referred to as an unsecured loan, because you will not be required to put up any assets in order to secure the loan.

Once, you have taken a personal loan, you will need to repay it by paying fixed amounts each month over a certain period of time.

You will get to decide the amount that you would like to borrow and over the term that you would like to borrow the money for. However, the lender will make the ultimate decision on your loan.

The amount that you will need to pay back will be the initial amount that you borrow as well as the interest that has accrued over the term.

You might be wondering why you should take a personal loan…

The Benefits of Personal Loans

There are a number of benefits associated with personal loans, so here is a look at the ones that you need to know.

Personal Loans Are Available Quickly

A personal loan is usually processed quickly, which means they are perfect for emergencies. If you have an expense that needs an immediate payment, then you will be able to get the money you need.

A personal loan doesn’t require much paperwork and there isn’t a lot of protocol involved. You will need to speak to your lender, fill out the required forms and the funds are given to you within a few days as long as you have met all the conditions set out by the lender.

Personal Loans are Flexible

Personal loans are more flexible than other types of loans as they do not have any restrictions on what you can spend it on. You are able to use a personal loan for anything that you want.

The lender is also not interested in what you want the funds for and what you are going to spend the money on as they are more interested in your capability to repay the loan back by the intended due date.

People take personal loans for all sorts of reasons like medical treatments, education fees, holidays, weddings and other such things.

Personal Loans have Lower Interest Rates

When you compare a personal loan with other loan types, personal loans show to have lower interest rates, which can be fixed. A fixed interest rate means that it doesn’t change over the course of the loan or according to the current market.

This has led to there being stiff competition between lenders as they all want to attract customers with low interest rates. However, make sure that you always read the fine print before taking a loan.

A lender will also assess your risk, which means that the interest rate is determined by your ability to repay the loan. If you have a high earning job, no other loans, a good credit score and have a relationship with the lender then you won’t have any problems in getting the best interest rate.

You can further lower your interest rate by changing it to a secured loan, but this means that you will put up an asset against the loan.

Personal Loans Have Planned Repayments

Personal loans are fixed term loans, which means they offer the same interest rate and repayments over the term of the loan. This will help you to budget every month as the repayment will never change and you will know exactly what you owe beforehand.

If you are able to repay the loan before the intentioned due date then you are able to pay it off. However, make sure that the lender doesn’t charge you a settling fee for doing this. Your credit rating will improve when you pay your loan off by the intended due date or before.

With so many benefits, it is easy to see why taking a personal loan is a good option if you need to get some money to help you through an emergency or if you just need something.

However, you need to keep in mind that a personal loan will also increase your personal risk, because you are taking on a financial liability that you will need to repay as well as the interest rate that will accrue through the term of the loan.

There are a number of personal loan lenders to choose from, but remember that you can’t just get a loan. You will first need to qualify and be approved for the loan, which means that your credit score can come into play, so make sure you meet all the requirements of the lender before you apply, so you have a better chance of being approved.

FAQ for Personal Loans

Why Might I Need a Loan?

There are many reasons as to why people might borrow money. The first of these is to ease cash flow and another common reason is to settle debt.

The most common reasons people borrow money is:

  • Pay off debt
  • Wedding expenses
  • Child expenses
  • Home and renovation expenses
  • Education
  • Emergencies
  • Unanticipated cash needs

What to Consider Before Applying for a Loan?

One of the top factors that you need to consider before you take a personal loan is the interest rate, as this will determine the overall cost of the loan.

Other factors that you need to look at are the features of the loan, the loan terms, the application process and other such things.

What you Should Borrow?

You should only borrow what you need. Another factor to consider is your ability to repay the loan and if you can do so comfortably.

How Long Should You Have The Loan?

Your monthly repayment amount is influenced by the repayment term that you choose. You will need to look at what you can afford so that you can balance the repayment amount with the length of the loan

A longer repayment term will lower your monthly premium but the total interest that you will pay is higher.

What are a Credit Report and a Credit Score?

A credit report is a record of your credit history that is provided by the banks and other financial institutions. A credit report will be used as a reference by a lender for a personal loan.

A credit score is the numerical version of the credit report at a certain time. It is created through the customer’s credit account information.

What is a Monthly Flat Rate?

This is how the monthly repayment that needs to be made is calculated.

What is the APR?

The APR is the annual percentage rate and is an index of borrowing cost and is calculated on a yearly basis.

What are the Other Costs in Borrowing Money?

There is a handling fee that is charged for processing a loan and is charged on a yearly basis.

If you decide to settle the loan earlier, you may have to pay an early repayment fee.

If you are late in making your monthly repayment then you are charged a late repayment fee.

What is a Personal Installment Loan?

A customer is able to pay the actual loan amount ads well as the interest with a monthly amount for a certain period of time that will equate to the total owed.

What is a Revolving Loan?

This loan gives customers a revolving line of credit that can be withdrawn from at anytime. There is no fixed monthly repayment amount or repayment period. Customers are able to pay the minimum required and interest will be charged on an outstanding balance.

 

FAQ Medical Insurance

  1. What is Medical Insurance?

Medical insurance is a contract that you take with an insurance company. The insurance company will then agree to pay some of or all of your medical bills depending on your coverage type.

The insurer is paid a certain amount a month, which is called the premium.

  1. Why do you Need Medical Insurance?

Medical insurance needs to be in place so that the cost of any treatment that may occur is covered.

  1. Can Family Members be Covered?

Direct family members like children and your spouse that live with you are included as dependents in your medical insurance.

  1. Will I Need a Medical Examination?

Generally a medical exam is not necessary, but you will have to fill out a medical form where you declare any and all medical information. A medical report can be requested from your doctor.

  1. Will I be covered for any Illnesses or Injuries that I have before I Join?

Pre-existing conditions are usually excluded within the first two years of membership.

  1. Why do I Need Medical Insurance?

Health care can be expensive, so without medical insurance you will have to pay for any treatment or hospital stay out of your own pocket. Medical insurance will then protect you from these expenses and share the cost.

  1. What is the Difference between a Deductible, a copayments and coinsurance?

All of these are medical charges that you will need to pay from your pocket. The deductible is the initial expense that you pay every year to be covered for health services. A copayment is a specific amount they you pay towards each medical service. A coinsurance is a set percentage, which you pay towards the service.

  1. What Does Medical Insurance Cover?

The cover that you receive will depend on the policy that you choose and the payment amount that you make. But it might include in-patient treatments, day patient treatment and out patient treatment.

  1. How much will it Cost?

The amount that you pay per month will depend on the level of cover, the policy and your own circumstances.

  1. What are the Benefits?

The benefits of medical insurance are many. For one you will be covered in the event of an illness or injury where you have to go to hospital. You also have a range of network doctors and hospitals to choose from so that you get the best care.

 

FAQ Personal Finance

Personal finance is about self-evaluation, as you need to get a firm grip on your own finances.

If you want to succeed in money then you always need to look at your life, your goals and your choices.

Here are 10 questions that you should ask yourself in regards to personal finance.

What was the Last Money Mistake I Made?

Usually this is a spending mistake and involves you spending money in some way that you shouldn’t have, but why did you make this mistake? What was the situation for this spending?  You need to find the reason as to why you spent the money so that you can avoid this in the future.

Am I Realistic in Savings for Retirement?

You should head to a good retirement calculator that you can find on the Internet and see what you pace looks like. Realistic numbers are 3% inflation and 7% return on investments.

This will help you to determine if you are on track for when you want to retire.

What Can I Do in Terms of Education for my Children?

The first thing that you need to decide is how you intend on helping your children through their college years. If you are going to help then you need to look at what you are saving for this.

Do I Have a Will or Life Insurance to Protect Dependents?

If you are a person that has dependents in your life then they will be your main priority to make sure they are looked after, once you are gone.

It is a good idea to get a term life insurance for this situation.

Is my Emergency Fund Big Enough?

It is a good idea to have a good amount in a savings account that can be used for emergencies. If you do not have an emergency fund right now, then you need to start one.

What is my Plan if I Lose My Job?

What would happen if you lost your job? Do you have a plan to get more work? You need to thing about these things and have a plan in place, as you will need to survive financially in the event you become unemployed, this is where your emergency fund comes in.

What Happens if you Lose your Spouse?

The loss of a spouse can have financial implications for you, so what is your plan if something happens? This is where an emergency fund will help or another financial plan. You need to explore all of your options in the event that this happens.

What about the Big Expenses?

If you know that big expenses are coming in the next year, you don’t have to panic; instead you can start saving for them right now. If you know a certain bill is coming for a certain amount, divide it into chucks and save that amount each month, so that you can pay it easily.

What about Future Expenses?

This question makes you look further down the road. If there is a purchase that you plan to make in the next 5 or so years, you can set a goal for when you want to reach this by. You can set an approximate date and figure out how much you are able to save each month to get there.

What Can I Do to Improve My Income?

Personal finances is dependent on your income so you need to think if you are able to change your income level through getting a better position, finding a different job or picking up a part time job.

 

FAQ Debt Consolidation

  1. How Can You Consolidate Debts?

You are able to consolidate debts with a debt consolidation loan ort you are able to sign up to a debt consolidation management company that offers this service.

  1. What is a debt Consolidation Loan?

This is a low interest loan that you are able to use to pay off your existing debts.

  1. What is a Secured Consolidation Loan?

This is where the loan is taken against collateral like a house. The collateral secures the loan and if you fail to pay the collateral is seized by the lender and sold to recover the money.

  1. What is an Unsecured Debt Consolidation Loan?

This loan will not require any collateral.

  1. An Unsecured or a Secured debt Consolidation Loan?

The collateral will generally lower the interest on a secured loan, which means that your monthly repayments are lowered. A secured loan is then preferable as it is easier to pay off, but the condition is that if you are unable to pay then the collateral can be seized.

  1. Is a Home Equity Line of Credit worth Considering as a Debt Consolidation Loan?

This is worth considering if you have enough equity in your home. The more equity that you have then the less interest you will have to pay and the more that you can borrow.

  1. Do I Need to be a Homeowner to Consolidate my Debts?

This is not necessary. You are able to take an unsecured consolidation loan if you do not own property. This will have a higher interest rate though.

  1. Is a Debt Consolidation Loan Different than a Debt Consolidation Mortgage?

A debt consolidation mortgage will allow you to take out a new mortgage to pay off other debts. You are then left with just the one mortgage payment. A debt consolidation loan can pay off your debts.

  1. Do Debt Consolidation Services Charge Fees?

A debt consolidation program will require you to pay some fees.

  1. How Can Debt Consolidation Simplify my Monthly Payments?

With debt consolidation, your various debts are replaced with just one debt. This new debt will usually have a fixed low interest rate and a longer repayment period. You monthly payable amount is reduced and becomes one single fixed payment.