When Should You Consider a Personal Loan?

Key Takeaways

• Personal loans typically allow you to borrow anywhere from $5,000 to $50,000.
• They can help finance life’s biggest moments or its unplanned expenses.
• Compare the perks of a personal loan with other financing options — like dipping into your savings, taking out a home equity loan, or putting it on a credit card.

Life can be expensive. You have your regular bills, everyday expenses, and even the occasional splurge. Then there are bigger, out-of-the-ordinary expenses.

So how do you cover these one-time, large expenses? Sometimes you can pay with cash from your savings, borrow against your home’s equity, or put the charge on a credit card. Other times, these options aren’t the best solution for your expense. That’s when you can turn to a personal loan.

What is a personal loan?

Personal loans typically range from $5,000 to $50,000. Most personal loans are unsecured, meaning no collateral is necessary, and your interest rate is determined by your credit score. Most personal loans have a fixed interest rate, which means your payments are the same throughout the repayment term. Personal loans also offer short- and long-term repayment options; shorter repayment terms mean paying less interest over the life of the loan, while longer terms could lower your monthly payments.

When to use a personal loan

Personal loans can be used in a variety of ways, ranging from life’s most memorable moments to those unplanned expenses. Some uses include:

• Consolidating debt: Do you have multiple high-interest credit cards that need to be paid off? You could use the funds from a personal loan to pay each of those debts, leaving you with one fixed payment each month. Consolidating like this not only makes repayment easier to manage, but it could also lower your interest rate.
• Home repair/improvement: Need to replace the air conditioning system in the house? Putting a pool in the backyard? Personal Loans could cover the cost of home improvement projects that are just out-of-reach of your budget.
• Growing your family: Whether you are having a baby or planning to adopt, there are numerous costs associated with having kids. These expenses may include medical bills, baby supplies, a car seat, and maybe even moving to a larger home. These expenses aren’t cheap either, especially adoption — in some cases, they can cost $45,000 in the U.S. (including the adoption itself and related expenses). All these bills can be tough to cover through other financing options, so many people turn to personal loans.
• Celebrate life events: Whether you want to attend a family reunion, reward your recent grad with a European vacation, celebrate a special wedding anniversary, or pay for your kid’s wedding, a personal loan could help you cover it without digging into your savings. With a personal loan, you can pay the expenses up front so you can enjoy your special occasion without worrying about the cost. You can pay off the loan afterward using the appropriate repayment option.

What are your other financing options?

Now that you know what a personal loan is and how it can help, you should compare it to other financing alternatives. So what are your other options?

• Savings: Tapping into savings makes the most financial sense since paying with cash does not come with interest charges. If you have the capacity to use savings, do so. Still, there may be times when you don’t have enough saved to cover the expense or you need to hold onto your cash for other purposes.
• Home equity: A home equity loan or line of credit could be an option if you’ve built up enough equity in your home. But you can only borrow up to the amount of equity you have, so if you’re a new homeowner, you might have to make more mortgage payments before this becomes a viable option.
• Credit cards: Credit cards offer quick access to funds that are inexpensive as long as you repay your bill in total when it's due. But if the expense is too large, it can be tough to pay it off entirely, triggering higher interest charges.

What to remember

Life comes with big expenses, whether they’re expected or unexpected. And if the expense is too large for your savings to cover, a personal loan could be the most sensible solution. It could ease the burden of your credit card debt, push up the date of your dream wedding, or cover the cost of the cute new addition to your family.

More information

We are committed to helping you reach your potential by providing personalized solutions. Our dedicated colleagues can help you find the right product to help you reach your goals. To learn more about personal loans, please call 1-888-333-0104, visit us online, or Ask a Citizen at your nearest Citizens Bank branch.