What Can You Use a Personal Loan For?
As of January 2022, the average amount of unsecured debt per UK adult was estimated at £3,743. This sum comprises both unsecured personal loans and credit card debts, while there’s a suggestion that the figure will continue to rise for the foreseeable future at least. But what exactly is a personal loan, and what can you use this type of borrowed capital for? Let’s find out!
What is a Personal Loan?
Personal loans are typically unsecured in nature, meaning they don’t need to be backed with collateral to secure the loan. This is why they are usually lower in value than secured loan alternatives. This helps lending companies to offset their increased risk, as they’ll also increase the interest rates applied to such unsecured loans in the absence of any agreed collateral.
A personal loan will enable you to afford larger, bigger-ticket purchases, providing the necessary lump sum in cash after creating an agreement through which you’ll repay the total loan amount (and agreed interest) over a predetermined period of time. You should always make sure you can make the repayments before agreeing to the terms, assess your finances and find out how much you can afford to repay each month. Such repayments are broken down into manageable monthly repayments, while personal loans are different to secured loan arrangements as they don’t give lenders the security of an underlying asset to be used as funding (such as a car or house).
What Can You Use a Personal Loan For?
The question that remains, of course, is what can you use a personal loan for? Here are some of the most popular applications:
- #1. Make a Large Purchase: Let’s face facts; we all face large and unexpected payments from one time to another. In instances where you have minimal savings or disposable income, you can leverage a personal loan to cover the cost and repay this over an extended period of time. Ultimately, personal loans enable you to make a larger payment and fund purchases such as new appliances for the home, or potentially buying a used car outright.
- #2. Fund Wedding and Travel: One of the biggest-ticket costs in life are weddings. Weddings are particularly expensive events, costing an average of £17,300 in the UK through 2021. Large-scale or extended trips abroad can also command huge costs, and in both instances, a personal loan may help you to access cash instantly and budget to repay this out of earned income.
- #3. Clear or Consolidate Debts: Last, but not least, we come to debt management. Personal loans can definitely help when dealing with a large number of small debts and different creditors, as they enable you to take out a single lump sum that can be used to clear your outstanding liability. If your debt total is building up with growing interest, you can use a loan with a lower interest rate to pay off a fixed amount and consolidate your remaining debts so long as you identify a product with a lower rate of interest overall. Interest is the key consideration here, as this compounds the total debt and causes debts to grow to more difficultly managed amounts.
