5 reasons to consider taking a personal loan

The age-old advice of only spending money that you actually have is a solid way to manage your finances, but it shouldn’t hold you back from making certain purchases. In fact, there are plenty of reasons to consider taking on a little debt in order to maximize your profits in the future.

One of the ways you can do this is to apply for a personal loan. Before you commit to anything, it’s a good idea to weigh your options to make sure the terms of the loan you select will fit into your budget. Compare interest rates, loan amounts, origination fees, payment structure, and prepayment penalties during your analysis.

After you’ve done your research and due diligence, you are ready to submit your paperwork and receive your loan. Here are five reasons why you might consider taking a personal loan for future financial gain.

1. Home improvement: Projects like flooring, bathroom remodels, and pool installation require a large sum of money up front if the company or contractor you use doesn’t offer an attractive financing option. Securing a personal loan for a home improvement project helps you control the financing terms and allows you to invest in your home’s value.

2. Debt consolidation: If you have several credit cards with balances, you can apply for a personal loan to pay off all your cards and simplify your payments with one monthly minimum. Just make sure you’re getting a better interest rate on your new loan so that you don’t end up costing yourself more money in the long run.

3. Buying a vehicle: Sometimes you can secure better loan terms through a different financial institution than the one the dealership uses. This can help you purchase the vehicle you want without breaking the bank on your monthly payments.

4. Medical bills: Injuries and illnesses can happen suddenly, and the associated costs are not always affordable. A personal loan can allow you or a loved one to get the care they need, along with a long-term repayment plan.

5. Credit diversification: A solid credit mix accounts for about 10% of your credit score. Financial advisors don’t recommend taking out a loan just to improve your score, but if you do take out a personal loan for a good reason, you could see a boost in your score.

When NOT to apply for a personal loan

While a personal loan can be a valuable tool to help you further your goals in the future, it can also be detrimental to your finances if you’re not ready for it. There are three main scenarios when you should avoid taking a personal loan.

1. You want cash fast. Always make sure you have a clear purpose for the money and a timely plan to pay off the debt. If you need cash fast to cover an emergency, that can be justified. However, if you simply want money for a large, frivolous purchase, such as a vacation or a big-screen TV, you should consider other options that don’t involve going into debt.

2. The loan doesn’t fit into your budget. Receiving thousands of dollars into your bank account immediately might feel like instant freedom, but you need to think about the monthly payments you’ll be paying in the future and how the interest rate will affect your payoff time. If you’re forced to pay hundreds of dollars each month to keep up with a loan that won’t go away for several years, you should make sure you feel comfortable with that before you accept the loan.

3. You’re trying to pay for higher education. The costs associated with college are undoubtedly high, but unfortunately there are restrictions in place to prevent people from using personal loans for their education expenses. It is possible to pay for other college-related expenses with a personal loan, but financial experts say there are often better ways to handle those costs.

It is always smart to consult a financial advisor before making any significant decision with your money, especially if you plan on going into debt for any reason.

Pacific Cascade Federal Credit Union offers a variety of loan options, including personal loans, mortgages, and home equity loans. If you’d like to speak with someone at PCFCU about your eligibility for a loan and how to apply, visit wesaveyou.com or find a location near you.

The information in this article is strictly educational. It should not be considered official financial or investment advice.