Statistics show that the average American only has around $1,000 saved. This means that if any emergency happens, not much is available to deal with it. Personal loans are thus often considered to cover many different expenses.
As personal loan rates are usually lower than what you see with credit cards, temptation is very high. You can use title loans in Arlington to buy absolutely anything you want but you should only stick to actually need. After all, we are talking about a loan that does have interest rates. With all this in mind, here is when you should seriously consider using personal loans.
When Are Personal Loans Justified?
Since you can spend cash however you see fit, you will surely be faced with temptation. However, examples of really good personal loans use include:
- Consolidating Loans – This is a great example of when you should consider a personal loan. Whenever you can completely pay off some debt and reduce the interest rates you pay, it is a good expense that completely justified taking out a personal loan.
- Emergency Expenses – Most people do not have a large emergency fund so if an emergency appears, the personal loan can minimize financial gaps while having to pay a low interest rate when compared with other options, like payday loans.
- Home Improvements – Not all home improvements warrant taking out a personal loan. You want to consider the option when you add value to the property. It is much better than using credit cards. Then, another mortgage can be gained at better rates, deducting interest as the home is utilized as collateral.
When Are Personal Loans Not Justified?
While a personal loan will help you to avoid many financial problems, using them for a wrong reason can do the exact opposite. Always try to avoid taking out personal loans in situations like the following:
- Spending Beyond Means – Since rates are low, people are tempted to use personal loans for splurging. For instance, it is common go see such loans used to make the wedding larger. Such a situation is not a smart investment as it would create unnecessary extra debt. Similarly, if you want to go on a vacation, it is much better to save money than to use personal loans.
- Car Loans – If you take a personal loan and use it to refinance your car, the interest you pay is normally higher on the long run, even if the math does seem great at first glance. Car specific title loans are always going to have lower interest rates since you use a vehicle as collateral.
- Medical Expenses – You can end up having to deal with such expenses without even realizing it, thus not being able to pay bills. Before the personal loan is agreed to with the purpose of covering medical bills, talk with medical providers. Many will agree to payment plans that have much lower interest rates. Repayment terms are also almost always better.
Always use personal loans just when you are sure that the choice is a really good one. Remember that interest rates can still be high for you, even if lower than with other loan options.