When to Consider Using a Personal LoanPublished on February 5, 2021 by Daniel Azzoli
We all wish we had the magic formula to make sure we never had to deal with a potential financial fallout from an unexpected emergency, but unfortunately, that doesn’t exist. If you haven’t prepared your finances for that moment when an emergency rears its ugly head, you’ll need to find a quick solution to close the financial gap.
Ideally, if you do end up having to deal with an emergency expense, you’ll have enough savings set aside in your emergency fund to handle it. But what if you don’t have an emergency fund, or it’s not enough to cover your emergency? That’s where a personal loan comes in.
A personal loan online may be the emergency stopgap you need to help you get through a tough financial time. Just remember that these can be pricey financial tools, so you’ll need to use them wisely.
Today, we’re going to break down some common scenarios where a personal loan could be a potential way to help you handle emergency expenses.
What is a Personal Loan?
In simple terms, a personal loan is a loan that you apply for when you need cash for personal and not for business purposes. This money could come from a bank, credit union, or certain other types of financial institutions.
There are different ways of classifying personal loans in a broad sense. One way is to distinguish between closed-end and open-end loans. Closed-end loans like personal installment loans online will come in the form of a lump sum which you’ll then need to pay back with interest and/or fees over a specific period of time.
On the other hand, open-ended loans like credit cards or lines of credit come with a credit limit which you’ll be able to draw money against and use on an as-needed basis, as long as you have available credit and your account is in good standing. With this type of personal loan, you’ll need to pay back what you draw in addition to interest and/or fees.
When Should You Consider Applying for a Personal Loan?
Based on our definition of a personal loan, you can probably guess that a personal loan is a fairly broad category. Things like auto loans, mortgages, personal lines of credit, and student loans are all technically considered personal loans. So because of this, there’s a relatively wide range of situations where you could potentially find a personal loan to be useful.
For the purposes of our list, we’re going to focus on situations where you’re facing an emergency expense. Even within this scope, there might a number of different situations where you’ll need a little financial help, so we’re going to look at some of the more common situations.
1. Emergency Medical and Dental Expenses
If you’re in the bloom of health, the cost of health care might not be something that you’re particularly concerned with. But a clean bill of health isn’t going to count for much if you stumble into some sort of accident and need emergency medical care. If you don’t have health insurance, a surprise trip to the emergency room or to a specialist can get very pricey.
The first thing you should consider doing is saving up for potential medical expenses in advance. Like we said, it doesn’t matter how healthy you are – there’s no downside to preparing yourself for the possibility of an emergency medical expense.
That’s not to say that it’s an easy thing to do, especially if you’re on a tight budget. While you’re going through the process of saving money, look into what potential options are out there for health care that you can afford. And it should go without saying, but make sure you’re taking full advantage of the health benefits that your employer may offer.
If you do end up facing emergency medical expenses and you haven’t saved up enough to cover the costs, a personal loan may be able to help. Just keep in mind that these should be used as a last resort. Before you apply for a personal loan, consider these potential options:
- See if your medical provider is willing to work with you towards a payment plan that you can spread out over multiple installments.
- Look into any financial aid programs that you may qualify for.
- Try to negotiate the cost of your treatment.
2. Emergency Auto Repairs
If your budget is a well-oiled machine that isn’t packed to the brim with essential expenses, you may have enough extra room to take care of the regular maintenance costs of your vehicle, but things may not be that straightforward.
For example, imagine the little check engine symbol lights up on your dashboard, but you decide to ignore it. A few weeks later, you’re cruising along when all of a sudden you hear a strange noise coming from your car. Something clearly isn’t right, so you bring it into the shop to see what’s going on and you’re met with a huge quote to fix your engine. While there are times when your car may break down for reasons that are out of your control, there are instances where things go wrong because you’ve ignored a problem that’s staring you in the face.
You might give yourself a chance to avoid paying exorbitant car repair fees by:
- Keeping up with regular maintenance
- Bringing your car in for scheduled checks
- Doing as much maintenance as you can on your own
- Getting in touch with a trustworthy mechanic who won’t overcharge you
But like we said earlier, there are some emergencies that you won’t see coming and can’t do much to avoid. In these instances, a personal loan may be able to help. This can be especially important when you not having your car means missing shifts at work and having to make do with a lighter paycheck.
3. Emergency Home Repairs
Buying a home is likely going to be one of the single biggest purchases you make in your entire life, but the costs don’t stop after that initial down payment. You’ll need to keep up with your mortgage payments, insurance, property tax, and more. On top of that, you’ll also need to be prepared to deal with any emergency repairs that pop up over time.
These emergencies can come in the form of things like:
- A broken water heater
- Burst pipes
- Broken windows
- Mold and rot
- HVAC repairs
Just like with your car, one of the best things you can do to avoid these potential emergencies is to stay on top of your regular household maintenance. For example, let’s say there’s a big tree in your backyard. While, it’s been standing there majestically for decades, it also has long, dead branches still clinging on to the trunk. You continue to put off pruning the tree, and then one day a huge storm blows through, and these dead branches go flying off the tree and straight into an upstairs window. While this would certainly constitute a situation where you might want to consider applying for a personal loan, it’s also one that could potentially have been avoided. If you had just pruned the tree in advance, you might have been able to avoid the cost of repairing your window.
This same idea can be applied to other parts of your home. The quicker you deal with smaller problems that may crop up around the house, the less chance there is that these turn into bigger and more expensive issues down the road.
Consider a Personal Loan for Emergencies
Dealing with emergency expenses and unexpected costs can be tough when money is tight and you don’t have a solid emergency fund in place. It can feel like you’re stuck between a rock and a hard place when you’re trying to decide how to deal with them. You might not have enough saved up to handle the expenses, but you also can’t afford to not deal with them right away either.
Whether you or a loved one need to take an unexpected trip to the emergency room, your car breaks down and you can’t get to work, or a pipe suddenly bursts and you need to stop the leak right away, these are things that can’t wait until you’ve saved up enough to deal with them.
Personal loans like a personal line of credit or personal installment loans online may be able to help in these scenarios. Just make sure that you do your research and find an option that’s best suited to your particular situation.