If you’re in the market for a personal loan, the purpose of your loan can impact which lenders you can work with and what your rates will be. Finding a lender that aligns with your loan purpose and financial goals can make a big difference in your overall satisfaction with your experience.
- Consolidate debt
Consolidating debt is one of the most common reasons to borrow a personal loan. According to a 2022 LendingTree study, debt consolidation was the most popular reason to apply for a personal loan among consumers with excellent credit.
Debt consolidation involves rolling multiple debts into a single personal loan. This approach can make sense if you’re able to secure a low-interest rate. If you repay your other debts with the money from a personal loan, you’ll only have one fixed monthly payment and you might be able to save money on interest.
The average APR on a 24-month personal loan was 8.73% in May 2022 — the latest data available from the Federal Reserve — while the average interest rate on all credit card accounts is 15.13%.
A personal loan for debt consolidation could also help you:
- Extend your repayment term
- Lower your monthly payments
- Free up more of your income to cover necessary expenses
- Cover emergency expenses
While it’s best to build an emergency fund to cover unexpected expenses, an emergency personal loan can help if you’re not yet prepared.
Unfortunately, many Americans are unable to put aside money for an emergency savings account. In 2022, the Consumer Financial Protection Bureau performed a survey on consumers and found the following:
- 24% of consumers have no savings in case of an emergency
- 39% of consumers have less than a month of income retained for emergencies
- Only 37% of consumers have at least a month of income set aside to cover emergencies
Some reasons for an emergency loan include:
- Job loss or reduced hours
- Auto repairs
- Medical bills
- Help a friend or family member
- Provide safety and security
There is always a fear of sudden loss. There may be a fire in the factory, a storm in the sea, or a loss of life. In all these cases it becomes difficult to bear the loss. Insurance provides cover against any sudden loss. In the case of marine and fire insurance, the loss suffered by the insured is fully compensated and he is restored to his earlier position.
- In the same way, if a bread-bringing member of the family dies prematurely, the family is provided with money to continue with its livelihood. So, insurance gives security to both individuals and businessmen. These days insurance covers various social welfare schemes also. Schemes are providing for unemployment, sickness, accident, health, and old age insurance. These schemes are helpful for poor people and help in establishing social justice.
4. Generates financial resources:
Insurance generates funds by collecting premiums. These funds are invested in government securities and stock. These funds are gainfully employed in the industrial development of a country for generating more funds and utilized for the economic development of the country. Employment opportunities are increased by big investments leading to capital formation.
5. Life insurance encourages savings:
Insurance does not only protect against risks and uncertainties but also provides an investment channel too. Life insurance enables systematic savings due to the payment of regular premiums. Life insurance provides a mode of investment. It develops a habit of saving money by paying premiums. The insured get the lump sum amount at the maturity of the contract. Thus life insurance encourages savings.
- Finance funeral expenses
When someone dies without leaving behind sufficient funds for funeral costs, it can put an unexpected financial strain on the surviving family members.
The median cost of a funeral with a viewing and burial was $7,849 in 2021, according to the National Funeral Directors Association. Many consumers won’t have enough saved to cover that cost all at once.
A funeral loan could be an idea if you’re struggling to cover the cost of a funeral. You may even be able to get a funeral loan with bad credit.
- Help cover moving costs
Another idea on the list of loan purposes: covering moving costs. There are many scenarios in which moving loans may make sense:
- You don’t feel safe in your current environment
- You’re separating from your spouse
- You need more space for a child on the way
A job offer in another location can be another good reason to move, but you should consider carefully whether your new income and cost of living will make it possible to repay your loan.
- Make a large purchase
You can take out a personal loan to finance a large purchase, but that doesn’t mean you should borrow money to get a new entertainment system, patio set, or car. Some large purchases are necessary, such as suddenly needing a new major appliance.
While you can use a personal loan to buy a car, it’s typically preferable to apply for a traditional auto loan, since they usually have lower interest rates and easier qualification requirements.
On the other hand, auto loans require collateral, which means you could lose your car if you fall behind on payments. It’s a good idea to compare rates, especially if you’re worried about risk.
- Cover a major life milestone
Whether you’re getting married, going on a honeymoon, or thinking about adoption, a personal loan can put these ventures within reach.
In 2021, the average wedding cost $34,000 (including the engagement ring), according to The Knot’s Real Weddings Study. Since many people don’t have that kind of cash lying around, many lenders offer wedding and honeymoon loans to cover those costs.
Adoption loans are available to parents who are looking to cover the following expenses:
- Home studies
- Attorney fees
- Court fees
- Adoption agency fees
- Pay for Vacation
While taking a trip somewhere can be exciting, travel can be expensive. Between plane tickets, gas for your vehicle, food, shopping, hotels, and activities, a vacation can quickly feel unaffordable.
In California, the average fare for a ticket out of Los Angeles International Airport in early 2022 was $331.70, according to the Bureau of Transportation Statistics. At the Chicago-O’Hare International Airport, it was $333.44.
Vacation loans can ease some of the financial burdens of having to pay for a trip upfront and instead divide it into monthly payments.
- Financing education
Home equity loans are becoming a popular option for funding education because the interest rate can sometimes be lower than student loans. You also have the potential to borrow more. This gives many families an easier way to pay education expenses for multiple family members.
It is important to note that some parents may not want to finance their kid’s education if it would harm their overall financial security. Using home equity to fund education may be a good idea for some, but it can be perilous if you’re approaching retirement.
- 12. Business Expenses
Some business owners use their home equity to grow their businesses. If you have a business that requires more capital to grow, you might be able to save money on interest by taking equity out of your home instead of taking out a business loan.
Before you commit to taking this action, run the numbers on your business. As with using your home equity to purchase investments, a return on investment in a business isn’t guaranteed.
Why use home equity for this: You might be able to borrow money at a lower interest rate with a home equity loan than with a small-business loan.
Insurance has evolved as a process of safeguarding the interest of people from loss and uncertainty. It may be described as a social device to reduce or eliminate risk of loss of life and property.
Insurance contributes a lot to the general economic growth of society by provprovidingbility to the functioning of the process. The insurance industries develop financial institutions and reduce uncertainties by improving financial resources.
Spreading of Risk:
The basic principle of insurance is to spread risk among a large number of people. A large number of persons get insurance policies and pay a premium to the insurer. Whenever a loss occurs, it is compensated out of the funds of the insurer. The loss is spread among a large number of policyholders.
Insurance covers the loss of an individual but the social loss cannot be eliminated. If the property of a person is lost by fire, he will be compensated by the insurance company. The loss of goods will remain a social loss. Insurance cannot eliminate loss but it can reduce the risk to the individual.
When considering your options, make sure to consult with advisors you trust to help you make wise financial decisions. To your continuous progress.