Reasons Why Most People Take Out Personal Loans
The reasons for personal loans are as numerous as the reasons for money itself. From debt consolidation to holidays to unique cars to home renovations, we go over the reasons why most people take out personal loans.
Did you know that different lenders specialise in different personal loans? There are a lot of things that go into personal loans – we investigate…
This means taking out a loan to pay off other debts. It may sound strange at first but it’s really common. Why? Because you’ll be able to reduce your monthly repayments significantly, leaving more money for other things.
For example, someone may be paying off 3 different loans:
- Car loan – $250 / month ($5000 owing)
- Credit card – $150 / month ($2500 owing)
- Cash loan – $180 / month ($1500 owing)
Total: $580 per month in repayments, $9000 owing.
They take out a personal loan for $9000 of debt consolidation and pay out the three loans listed above. The repayments for that one large personal loan may be $300 per month – this frees up $280 / month for other things.
This is a pretty common one and easy to organise. The personal loan is often secured to the home, making chances of approval higher. Homeowners love fixing up that driveway or adding a new shower or some useful modern appliances. Home repairs also fall into these reasons for personal loans – fixing that leaking roof or broken fence for example.
These bills can crop up unexpectedly in life. It may be some emergency medical procedures that your insurance policy won’t cover. Dental or physio bills are common examples. A personal loan can take out some of the stress that these procedures often bring. Cosmetic surgery is another common medical expense that personal loans can cover.
Note that often lenders won’t approve personal loans for medical procedures where a patient is going under general anesthetic.
Travel and Holidays
Definitely one of the fun reasons for personal loans. Whether it’s that family holiday of a lifetime or a just a quick weekend away, personal loans can cover your travel expenses. Doing the ‘big lap’ around Australia in an ideal vehicle has become increasingly popular in recent years.
Another popular reason for a personal loan. Many people take out a personal loan for these special days – often including a honeymoon which would fall into the category above. Weddings can be hugely expensive – as well and hugely memorable and significant in life. A personal loan can make it happen.
We all know there are specific loans for cars – secured car loans – that have their own interest rates. These loans usually cover new cars or cars within ten to fifteen years of age. Generally, the older the car the higher the interest rate. But how about classic cars or sports and performance cars?
It’s these cars that can fall out of the ‘secured car loan’ category – usually because of registration and other regulations. A personal loan can cover a classic car, restoration process or buying a grey import – a performance car from Japan for example.
Can you get a ‘cash injection’?
Often, lenders need to know the reason for the loan. Some people like to say the money is for ‘personal reasons’ or just want a sum of cash as a fall-back plan. Although it’s up to the lender, you’ll usually need a specific reason for a personal loan.
- Before approving and settling a personal loan (which means a borrower receiving funds), lenders must follow strict guidelines to make sure borrowers can afford to pay back the loan. For example, if a potential borrower is struggling to make ends meet, adding more debts will put them into a financial hardship position. Lenders won’t do this.
- By law, lenders must also:
- Make reasonable inquiries about your financial situation, requirements and objectives
- Take reasonable steps to verify your financial situation
Reasons you CAN’T take out a personal loan…
There are a few reasons for personal loans that won’t fly – this can be due to laws, regulations or the lender’s own internal rules. Some common reasons include:
- Business purposes
- Sending money overseas
- Legal expenses that involve criminal charges
- Anything illegal
- General day to day expenses
Is a personal loan right for you?
As we’ve discovered, personal loans can cover a lot of reasons. Often, shopping around is a good idea with large purchases – finance can be tough. Each time you make an official enquiry for finance, it’s recorded on your credit file – too many enquiries and your credit score will drop. Make sure you get a higher chance of approval and always talk to a broker. Brokers are able to check the likelihood of your chances of approval and match your application to a lender suited to your circumstances.
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