THE BLOG
09/12/2016 02:35 pm ET Updated Sep 13, 2017

Taking Out A Personal Loan: 6 Reasons Why This Is The Best Bet For The Cash Strapped

If you have ever tried to take out a loan the conventional way, then you can readily identify with the difficulties that lie on that path. Loans have ruined as many lives as they've made, but people are still undeterred, seeing them as a necessary pathway to freedom.

Loans have long become a very diversified offering in the modern world, making it easier for people to access loans. My first attempt at trying to get a loan outside a financial institution was for an auto loan - I was surprised when my loan was approved and released to me same day!

Even my Chevy '96 was given back to me for the duration of the loan. Talk about a 'working" collateral!

This opened my eyes to the possibilities outside the restrictions of a traditional loan.

There are so many loan options today that have less stringent procedures and requirements; one of the most popular is the personal loan. You can get a personal loan for almost any reason under the sun.

This kind of loan is known as an unsecured debt. It requires no collateral such as your home or car as would be the case for a mortgage or a car title loan respectively.

All lenders need is your credit score to determine whether you are good for a personal loan and at what interest rate the loan will be given to you.

Personal loans, unlike credit card loans, have a fixed repayment term, usually two to five years and usually come with a fixed interest rate. This interest rate however can be higher than that for a secured loan, depending on your credit history. This is why most people who go for this kind of loan do so if they are certain they can pay it off quickly.

Simply put, personal loans are for the cash strapped individual who needs money urgently and cannot afford the long approval period of traditional loans. In most cases, personal loans can range anywhere from $5000 to as high as $500,000. You can feel comfortable going for it no matter your income bracket.

Here are just some of the few reasons why a personal loan is a good bet for anyone.

1. To help finance your home remodeling project

Do you want to undertake a remodeling project for your home? Perhaps, you want to add a swimming pool, landscape, putting a new roof, adding an extra room etc.

Whatever project that you have up your sleeve that will add value to your home, a personal loan is a great way to be able to afford to do this without eating into your home equity.

Using a credit card here to finance such a project only puts you at risk of racking up high-interest credit card debt.

2. To help improve your credit

It's funny to think that taking out a loan can actually help improve your credit score. When credit bureaus calculate your credit score they keep an eye out for a combination of revolving credit lines like credit cards and installment loans.

Taking a personal loan and repaying completely and in time will help to raise your credit score. But do not confuse paying 'in time' with paying 'too early'. You have to establish a payment history. When you take out a loan, make monthly payments and stretch it for at least 6 months to a year before it is completely repaid.

3. To pay for your wedding ceremony

Many people, especially women, want their wedding day to be a memorable one; they want it etched forever in the minds of family members and friends - and everybody else really. The problem is that often times, this lofty aspiration does not come with the required finance to make it happen. The average wedding in 2015 cost $32,641!

Personal loans have solved that problem for many a couple. Some people take out a personal loan to cover not just the wedding ceremony, but the engagement party and the honeymoon as well. While some others only need it to pay for the big expenditures such as the venue, the bride's dress, the wedding coordinator etc.

As long as you have a solid payment plan in place prior to taking out the loan, you are good to go.

4. To pay off credit card debt

This is arguably the best reason for taking out a personal loan. Because personal loans are unsecured they often come with a higher interest rate than you will find for a secured/traditional loan. However, these rates are still lower than those for most credit cards.

Paying off your credit card debt with a personal loan will help you save money. You might even want to think about getting a specific debt consolidation loan or lower interest personal loan. However, this will require you to stop using your credit cards if you want to keep your debts low. You can get online helpful tips on paying off credit card debt.

5. Create an emergency fund

There are times when a loan can be the only thing standing between you and bankruptcy. In these circumstances, it makes sense to borrow money for a rainy day.

Instead of waiting until there is an emergency travel, medical or any other type of emergency expense, consider taking out a personal loan that gives you enough time to repay while establishing your savings.

You can get a better deal if you do some 'loan shopping' beforehand rather than waiting until you are pressed for time.

6. To start a business on the side

When people say talk about starting a side hustle, this is what they really mean. In our world today, having one job is no longer enough to live on, much less invest in something else.

This is evidenced in the avalanche of working class people going the way of entrepreneurship. Many, however, find that they do not have the funds to start their intended business.

So what to do?

Simple. Take out a personal loan.

You can start to pay back the money from your business' revenue as soon as money starts flowing in. This will enable you to begin to enjoy the profits of your business sooner.