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Personal loans are incredibly popular due to their low interest rates and how quickly you’re able to get access to the funding. But for those who have never applied for this type of loan, it can be overwhelming. What are personal loans used for? How can you improve your credit by taking out a personal loan from a credit union? Discover what a personal loan is and our recommended ways to utilize one to improve your finances.

What is a personal loan?

Use a personal loan to get rid of debtA personal loan is a consumer installment loan used for personal, rather than business or commercial use. They are often unsecured loans, meaning there is no collateral required. They are given based on credit history and proof of income. They are considered installment loans because repayment is made through fixed monthly payments with a fixed interest rate over a set period. 

Our first recommendation is to use a personal loan to lift yourself out of debt. This can be through debt consolidation or paying off overdue bills.

CREDIT CARD CONSOLIDATION

Many people get stuck in a cycle of only being able to pay the minimum amount each month while interest skyrockets the total balance. If you are behind on multiple credit cards, consider consolidating all those balances on to one personal loan. Personal loans historically feature lower interest rates. This means you will save money by lowering your total interest paid on the debt. You will also not risk incurring new debt while paying off the personal loan.

PAY OFF OVERDUE BILLS

Uninsured medical bills left unpaid are often sent from doctor’s offices to collection agencies. Those collection agencies will report the debt to credit bureaus and damage your credit score. To combat this, take out a personal loan to pay these bills in full. You can then repay the personal loan at a reasonable monthly amount.

Another damaging bill is any bill coming from the IRS. This tax debt can be repaid in monthly installments through the IRS, but it is often less of a headache to deal with a credit union’s personal loan than the IRS month after month.

Use a personal loan for appreciating assets

GoBankingRates states, “Most financial experts suggest that taking out a loan for an appreciating asset is a good use of debt.” Appreciating assets mean anything that will increase your financial standing in the future.

EDUCATIONAL EXPENSES

HOME REPAIR AND REFURBISHMENTInvesting in higher education means greater earning power later in life. Taking out a personal loan now to afford college can mean greater income in the future.

If you own a home, investing in repairs and upgrades will increase its value. While most homeowners look to home equity loans for renovations, if you haven’t been in your home long enough to build up substantial equity – a personal loan may be the better option.

What you can’t use a personal loan for

Personal loans are extremely flexible. Financial institutions allow the funds to go towards a variety of items. However, there are a few items you cannot use a personal loan for. These are,

• Investments
• Gambling
• Illegal activity

Make sure you ask the financial institution if they put any other limitations on their personal loans before you accept the funds.

What you shouldn’t use a personal loan for

Like any loan, personal loans can hurt your credit if you fail to make payments. For this reason, think twice before using the loan for any extraneous purchases. These could be vacations, weddings, or any other personal needs or wants. These purchases do not work to eliminate existing debt or appreciate assets – they simply add to your debt. If possible, pay for these types of items in cash. But if you’re set on buying a vacation, and your only other option is using a high-interest credit card – we recommend a personal loan instead.

Questions to ask your lender

What is the interest rate?Most financial institutions, including credit unions, offer some type of personal loan product. These can also be advertised as unsecured loans or signature loans. While shopping for a personal loan – make sure to ask these questions before taking out the funds.

• What are the repayment terms?
• Am I required to take out loan insurance?
• Are there any origination or other fees?
• Do you charge a prepayment penalty?

Once you’re satisfied with the answers, you can be confident you’ve found the right personal loan for you. However you choose to use your personal loan, make sure to pay on-time and your finances and credit score will thank you!

Discover AmeriChoice’s Signature Loan

What loan allows you to borrow $500 or more with only a signature and good credit? Check out AmeriChoice’s personal loan product and calculate what your monthly payments could be! Visit our Signature Loan page now for personal loans made easy!