Millions of people take on debt every year. As a matter of fact, no matter which age group you're in, chances are you have at least $10,000 in debt weighing against your net worth.
With all of this tough talk against debt that you hear in the news today, it's a wonder why anybody takes on debt anymore. Well, the truth is that taking on a personal loan responsibly and acquiring the debt that comes along with them is a practice that helps many people improve their quality of life.
Below, we're going to quickly answer the question, “What are personal loans?” Then, we're going to break down the main reasons why people take them on.
What Are Personal Loans?
Personal loans are loans for a fixed amount of money borrowed at a fixed rate of interest and repaid over a fixed amount of time.
For example, if you take on a home loan, you need to use it to pay down your house. If you take on an auto loan, that money needs to be used to purchase a vehicle.
Personal loans are much more open in that there are typically no guidelines on how borrowed dollars need to be spent. That simple differentiating factor makes personal loans one of the most popular loan products on the planet.
Why Do People Take on Personal Loans?
Now that you have your “what are personal loans” questions answered, let's talk about “why”. As we stated, personal loans are versatile so borrowers use them for a variety of things.
Here are a few of the most popular personal loan uses:
1. Debt Consolidation
Sometimes personal loans represent a good way for bad credit borrowers to lower their monthly interest payments.
For example, if you have 3 loans that carry separate interest rates, you could take out a single personal loan that has a rate which at least matches the rate of the cheapest loan you're paying for or at best beats it.
By buying out all of your existing debt with a new lower interest personal loan, you'd simplify your payments and reduce the amount that you're paying for your debt each month.
2. Home Repairs
Being a homeowner is a lot of fun… That is until things start to break.
An AC going down during the summer. A roof leak that springs during a rainy season.
These are problems that need to get fixed and are costly. If you don't have cash on hand, personal loans can give you the assistance you need for a home repair or a DIY project.
3. Vehicle Fixes
The vast majority of us need a car to get to and from work. Because of that, if you're living paycheck to paycheck and your car breaks down, you're going to run into problems.
If you can't go to work, you can't make the money that you need to fix your car. If you don't have the money that you need to fix your car, you can't go to work.
See the catch-22?
Personal loans break people out of that impossible situation and get them back on the road, fast.
4. Wedding Ceremonies
Celebrating your eternal love in front of friends and family members doesn't come cheap. As a matter of fact, the average wedding in America costs around $30,000.00.
Since most couples don't want to wait until they're 50 to say “I do”, they turn to personal loans.
Whether you're moving for a job or you're moving to get a fresh start in life, your move is going to cost you money.
Buying boxes, hiring movers, spending gas money getting from point A to point B, arranging for temporary housing… All of those things can bankrupt even the most cash-savvy of people.
Personal loans help movers by allowing them to pay down their move at a low monthly rate as opposed to needing to empty out their savings to pay for everything at once.
6. Medical Bills
Even with strides made on the healthcare front through the affordable care act, healthcare can still get expensive.
If you're finding yourself on the hook to pay off tens of thousands of dollars in medical debt, personal loans are a popular way to soften the blow.
Many private doctors will charge high interest rates on their medical debt. Personal loans help Americans bring those rates down.
7. Vacation Expenses
No matter how rich or poor you are, you and your family deserve to get away every now and again. If you can't afford to pack up the whole family and whisk them away to a place where they can rest and relax for a week or two, you're not alone.
Millions of families can't afford their vacation ambitions and many of them turn to personal loans to bridge the gap.
Imagine being able to take your family on the two-week vacation of their dreams for a couple of hundred dollars a month. Compare that to having to pay $10,000 out of pocket and you can see how personal loans become so appealing.
Wrapping Up What Are Personal Loans and Why Do People to Take Them Out
By this point, we hope that you know what personal loans are and why they mean so much to so many people.
While a lot of TV personalities and politicians like to attach a stigma to money-borrowing, know that if you borrow responsibly, taking on debt is normal and can help you get to the places that you want to go faster.
Do you still have some “what are personal loans” questions? No problem!
Check out this article on personal loans.