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Updated on Wednesday, January 23, 2019
At the start of a new year, many of us sit down to think of ways we can make improvements to our lives before the next ball drops. A personal loan is a tool that could help you reach many personal and professional financial goals this year.
How does a personal loan work? A personal loan is an installment product that usually has a fixed interest rate for a fixed term.
How can you get a personal loan? The process of applying for a personal loan is pretty simple thanks to online lending. Many lenders will let you prequalify for a personal loan with just a soft inquiry that doesn’t impact your credit. Once approved, you may be able to get loan funding the same day.
7 goals you may achieve with a personal loan
Goal No. 1: Pay off debt
Juggling many payments to different creditors can make things difficult. Using a personal loan to pay off existing debt can make repayment much easier. Say you have several different credit cards with balances and you financed some living room accessories a few months ago through a furniture store.
You could use money from a personal loan to pay off the credit card and furniture store balances. This strategy will turn several debt payments to different creditors into one manageable payment.
Then, take this one step further: Set up an automatic monthly payment for the loan so you can “set and forget” your debt payoff plan.
Goal No. 2: Reduce monthly payments to improve your budget
Aside from the convenience factor, refinancing debt with a personal loan can reduce monthly costs. Here’s an example, using MagnifyMoney’s credit card payoff calculator, of how a personal loan can lower costs.
Let’s say Mary has $10,000 in credit card debt with a 26% APR and she’s making credit card payments of $317 a month. It would take her 54 months to pay off the debt with $7,014 paid in interest.
Compare that to what she could pay if she qualified for a personal loan with a 15% APR. The reduction in interest rate could save her over $4,000 in interest while decreasing her payment to $115 a month. Not bad.
Do the math to find out how you could benefit from using a personal loan to pay off your credit card debt here. Lowering your monthly payment may offer some relief if your budget is tight.
Goal No. 3: Complete home improvements or repairs
Major repairs and home improvement projects can come with a hefty price tag. According to HomeAdvisor, the national average price for a bathroom remodel is $10,265. The national average for a kitchen remodel is $23,109.
Saving up cash for home improvements could take several months, if not years. Waiting around for your savings account to grow may not be feasible when you need to complete projects as soon as possible. If you’re in need of cash to make your dream remodel happen, a personal loan can get you the money you need now for home upgrades.
Goal No. 4: Start a family
A personal loan can cover costs such as hospital bills and other items that you may struggle to cover out-of-pocket when starting a family. For families considering in vitro fertilization or adoption, a personal loan can be particularly helpful given the high costs associated with both options.
According to the American Society for Reproductive Medicine, the average IVF cycle costs $12,400. Adoptions through an agency can cost between $15,000 and $40,000. A competitive loan with installment payments can help you get the money you need quickly to act on family plans you’d like to make sooner than later.
Goal No. 5: Move
Moving from one place to another can be great for a fresh start, but, like a few other life changes on this list, it can be expensive. According to HomeAdvisor, hiring a professional mover can cost $80 to $100 an hour. A DIY move can set you back $50 to $3,000 depending on the distance, time and other factors.
A lack of funds at the moment doesn’t have to keep you from a new adventure or new job across the state or country. Consider all your options for moving (i.e., a moving crate, a professional mover or rental truck, or asking if your new employer will cover relocation expenses). Then, shop around for personal loans to cover the costs.
Goal No. 6: Get married or divorced
If you don’t have $33,391 sitting around (the average cost for a wedding in 2017 based on data from The Knot), you could turn to personal loans as a source of funds. With that said, you should give your wedding budget serious thought before borrowing money. Think about the implications of bringing wedding and honeymoon debt into your new marriage.
On the opposite end of the spectrum, the ending of a marriage is another life event where a personal loan can be useful. Moving from a dual-income household to a single-income household can put a real strain on your budget. Borrowing money to help pay for attorney fees or move to a new home can lessen the financial burden, giving you one less thing to worry about during this significant lifestyle change.
Goal No. 7: Grow a business
Perhaps you need inventory for your business or you need money for ads to bring attention to your latest products. A personal loan is a source of funds that you could use to take your business goals to the next level.
Lenders look at your personal credit score and income to determine if you qualify for a personal loan. For this reason, a personal loan may be easier to obtain for startups and new businesses than a business loan where lenders look at your business credit and revenue to make a decision.
A personal loan could also be used to pay for a course or certification to further your career. Investing in training or courses can give you the extra credentials you need to get a promotion or salary increase.
Personal loans are very commonly used for debt consolidation, but that’s not the only way you can use them to achieve your goals. A personal loan can be a source of funds that can help you finance various life events.
The best way to find the right personal loan for you is shopping around and comparing options. Check out the fees, interest rates and loan terms with multiple lenders before making your decision.