5 Situations Where a Personal Loan May Help You Out
September 25, 2019 by Emma Gordon
If your savings aren’t prepared when disaster strikes, a personal loan may give you the cash you need to take on unexpected emergency expenses.
Tapping into savings might be one way to handle a financial emergency, but it isn’t always an option for everyone. You’re living in a time when the cost of living keeps going up while real wages (which are wages adjusted for inflation) are in decline.
This may make it hard for ordinary folks to save regularly. In fact, 40 percent of Americans that were surveyed by the Federal Reserve Board said that they would have to borrow money or sell something to cover an unexpected expense that costs $400 or more.
If your emergency fund is feeling a little light, you too may have to turn to an online loan for help. Options like an online cash advance or installment loan are a practical stopgap for tough situations — but only if you use them wisely.
Let’s dive into some of the most common and sensible ways an installment loan may help. But first, let’s look at how these online loans differ from the financing you might get from a mainstream bank.
What is a Personal Loan and How Does it Work?
To put it simply, a personal loan is money you borrow for personal reasons. This money typically might come from a bank, credit union, or online lender like MoneyKey.
Regardless of your lender, a personal loan like an installment loan is an example of closed-end credit. This means you’ll be given an advance, and you’ll have to pay all of it back with any interest and/or fees within a specific amount of time.
Compare this to a personal loan like a line of credit. With a line of credit, you get to use as much or as little of your approved credit limit as you want, and you have to pay back what you withdraw, as opposed to the full amount of the approved credit limit, along with any interest and/or fees.
If a line of credit sounds like something that would be more useful to you than an installment loan, you can learn about your options by switching to our guide on personal lines of credit.
Generally, you may pay a personal loan back in installments. Their frequency will depend on a lot of factors, including your income, your loan’s principal (the amount you borrow), and whether your loan is secured.
Secured vs. Unsecured Loans
A secured personal loan uses your assets as collateral. Collateral acts like a security deposit in case you can’t pay back your loan. Your lender will be able to take these assets as their own if you default.
Collateral will sometimes be the item you need the loan for — like a house or vehicle. However, you can use a variety of belongings as collateral, including future, earnings and jewelry.
Why would you put your belongings on the line? Collateral usually unlocks better rates and conditions, as it presents less of a risk to lenders.
Nevertheless, most personal loans are unsecured. This means you won’t put anything up as collateral. As a result, most unsecured personal loans have higher interest rates.
The interest rate depends on the type of personal loan you apply for, the lender, and your overall financial profile.
Lenders of unsecured personal loans may review your credit report to help them determine if a loan is affordable for you. They may check in to make sure your report shows a proven track record of paying bills on time and managing debt.
If you aren’t sure what your credit score is, click here to get started. By law, you’re entitled to a free credit report from each of the three major credit agencies once a year. That means that you can get a total of three free credit checks a year.
Loans for Bad Credit
The country’s biggest banks usually require prime or higher credit from their borrowers, so you may find it challenging to get a personal loan from a mainstream bank if you have subprime credit.
Luckily, you can find an installment loans direct lender that offers convenient alternatives to mainstream personal loans. An installment loan lender may be a good option if you have bad credit.
To see what you need to get the ball rolling with MoneyKey, click here for more information.
What Are Personal Loans Used For?
A loan’s use depends on the type of loan. Technically, a mortgage, auto loan, online installment loan, and student loan are all personal loans.
Obviously, each of these options have a unique purpose. A mortgage helps you buy a house, while a student loan helps you pay for your education.
An online installment loan has its unique purpose, too. It’s best used for small, short-term cash-flow problems that revolve around paying for unexpected emergency expenses.
But what does that mean? Let’s take a look at the common uses of an online installment loan.
1. Unexpected Auto Repairs
A well-made budget may help you cover expected maintenance costs, but it’s not always that simple.
Let’s say after a week of ignoring the check engine light, your car breaks down in protest.
An unexpected trip to the mechanic can end up costing you more than you planned. But just how expensive can it get?
- The average car repair was between $500 and $600 in 2017.
- If you need towing to the repair shop, you could add another $75 to $125 to the bill
Preventative care may lower your bills
Sometimes, car troubles may occur unexpectedly. But other times, it’s because you put off important work for too long.
You may be able to avoid a costly breakdown or reduce how much these repairs cost if you:
- Stay on top of maintenance. A regular tune-up may go a long way to extending your car’s life and reduce what you pay in repairs. Its cost is relatively inexpensive compared to a major breakdown.
- Take on DIY chores. Changing your oil and maintaining the right tire pressure are simple tasks that many people can do by themselves, and they’ll help keep your car in better shape. Try to branch out and perform more simple maintenance tasks to reduce how often you have to pay a mechanic for help.
- Find a trustworthy mechanic. Nobody wants to pay more than they have to for auto repairs, but it happens all the time. Check online and ask around for recommendations to find a reliable mechanic who charges fair prices.
2. Unexpected Medical and Dental Expenses
If you’re a relatively healthy individual, you may not consider health care as one of your major concerns. But a history of good health won’t mean much if you get into an accident and can’t avoid going to a doctor.
If you aren’t insured, an unexpected trip to the clinic, ER, or specialist may end up costing a fortune.
Below are some of the most common unexpected medical bills without insurance:
- An ER visit may cost between $150 and $3,000, depending on the issue
- Going to urgent care may cost more anywhere from $75 to $125 on average
- Fixing a chipped tooth could cost between $100 and $1,000
- An MRI costs $2,600 on average
Build medical costs into your budget — even if you’re healthy
It doesn’t matter what’s in your medical records. Everyone could benefit by saving for healthcare every month — whether you rarely get sick or you live with a pre-existing condition.
That doesn’t mean saving for future medical bills is always easy. It may be a challenge if you’re on a tight budget, but it’s doable.
For ways to free up extra cash to go towards this fund, check out these financial tips from us here at MoneyKey. Every week, you’ll find new ways to cut down on everyday spending.
As you save some money, research options for affordable health insurance. You should also check with your employer to see if they offer any healthcare packages.
Meanwhile, do what you can to keep yourself healthy, so you can avoid costly trips to the doctors.
When is a personal medical loan appropriate?
A personal medical loan is a specific kind of personal loan that’s meant to cover healthcare expenses. Most financial experts recommend using them as a last resort, as they may be an expensive option.
If an emergency medical bill is more than you can afford, try the following options before you take out a personal medical loan:
- Negotiate the cost with your medical provider. Either on your own or with the help of a medical bill advocate, get in touch with the clinic’s or hospital’s billing department. You’ll want to discuss ways you may lower your bill.
- Ask about payment options. There may also be an option to pay what you owe in installments. This will break up your bill into smaller chunks, so it’s more affordable in the short term.
- Research financial aid programs. There are charities and non-profit organizations that offer financial assistance to those in need. Spend some time researching these options to see if you qualify.
3. Unpaid Leave
After months and months of working, you may be dreaming about taking a vacation. But what’s stopping you from escaping the daily grind for a beach halfway across the world?
If you’re like a quarter of private-sector workers, you don’t have any paid vacation days, so taking a holiday would take a major toll on your budget. And remember, you should never take out a personal loan to fund your vacation. These loans are meant for unexpected emergency expenses, and only that.
You can choose not to go on vacation for the sake of your finances, but you can’t always predict if you’ll have to take time off work. You might get sick or you might be put on furlough.
If you’re facing a short-term unpaid leave that has a firm end-date in sight but makes it hard to cover your bills, an online loan may help you get back on your feet. These short-term loans are ideal for exceptional circumstances, like when unexpectedly lost pay makes it difficult to deal with an unexpected emergency expense.
For long-term absences, however, these may not be your best line of defense. For things like a lay-off or a chronic illness, you may have to look elsewhere for help.
4. Unexpected Expenses When Your Finances are Tied Up in Penalties on Your Bills
Most bills arrive like clockwork. You should know when your gas, electricity, water, cable, and Internet are due. And usually, you can reliably estimate how much these will cost.
Until you can’t. Every once in a while, an unexpected charge or sudden spike in rates may throw off your calculations. When this happens, you may end up stretching your budget tighter than usual or need to dip into your emergency fund to pay off these extra charges. If an unexpected emergency expense strikes at this moment – like an unexpected medical expense – you may not have the funds to deal with it. A personal loan may be able to help you deal with this unexpected emergency expense. However, there are some things you may be able to do to lower these extra charges.
How to prevent these surprises from occurring
Your utility bills reflect your energy consumption. You may be able to lower what you pay overall by reducing how much electricity or water you use — even when surge pricing makes your utilities more expensive overall.
Speak with your provider to discuss charges
See something you don’t understand on your bill? Don’t just assume it’s meant to be there. Get in touch with a provider anytime something unusual shows up on your bill, even if you can afford it. It could be a billing mistake.
If it ends up being a genuine charge, you may be able to negotiate with a representative about what you owe and when.
In the event you can’t afford the charges, your provider may let you arrange a delayed payment plan, or you may even be able to lower your charge.
5. Unavoidable Home Renovations and Repairs
As a homeowner, you may daydream about what your home could look like if you had unlimited money.
Maybe you’d tear down the walls on the main floor, modernizing it with an open-concept floorplan. Or, perhaps you’d focus on the bathroom, installing a rainfall shower, a separate clawfoot tub, and his and hers sinks.
Unfortunately, life isn’t like a video game. There’s no special code that puts an endless supply of money in your bank account.
As a result, your dream updates may have to wait until you set aside enough savings or receive a significant windfall.
But that doesn’t mean you won’t take on any work until you’re financially prepared. Owning a home can be expensive as you face unexpected damages, structural problems, and breakdowns.
Some common bills may include:
- The typical range to repair a burst water heater falls between $216 and $925
- The average range to replace a window is between $300 and $1,000 each
- HVAC repairs vary drastically depending on the work, costing as low as $20 to as much as $2,900
On average, homeowners spend approximately $2,000 a year on unavoidable maintenance and repairs. What you pay may depend on your property and the age and condition of your home.
Keep on top of household maintenance
You probably would rather catch up on the latest Stranger Things season than do your chores, but you may want to tackle your to-do list before clicking “next” on your queue. Putting off important maintenance tasks could end up costing you.
Let’s look at your property’s trees as an example.
An old tree with broken limbs, left unattended, is a hazard. Strong gusts of wind can rip these branches off and hurtle them towards your house. If they hit your roof or a window, you could end up with a costly bill.
You may be able to avoid this damage and its costs by keeping an eye on your property and pruning your trees regularly.
The same basic principle applies to the rest of your home. Addressing small problems as they come can help you avoid bigger, more expensive issues later on.
An Online Installment Loan May Help in Any of These Situations
Unexpected bills and repairs are tricky if you don’t have a lot of room in your budget. On one hand, you may not be able to afford them. But on the other hand, you may not be able to afford ignoring them either.
Say, if your car suddenly breaks down and you need it to get to work everyday, you need to repair a water heater that’s unexpectedly just broken down, or you need to pay for a trip to the doctor that you hadn’t anticipated.
An online installment loan may be useful if you can’t offset these costs in any other way. It acts as a safety net for necessary yet unavoidable emergency expenses.
If something unexpected comes your way, and your emergency fund isn’t up to the job, a MoneyKey Installment Loan may be a potential back up. Get in touch to see what a direct lender can do for you. When savings isn’t an option, an online loan may be a quick and convenient alternative.