What is a personal loan?
As mentioned, a personal loan is a cash advance given to the borrower without any requirements dictating how to use the money.
This means you can use your loan for whatever you want, unlike a mortgage which has to be used to buy a house, for example.
Additionally, most personal loans do not require the borrower to put down any collateral to secure the loan, in which case they’re called “unsecured loans”.
This aspect of lending makes it much easier for many people who don’t have anything to use as collateral to receive a loan.
Personal loans are not exclusively delegated to those drowning in debt, either.
In fact, often people with good credit and financial stability will take out a personal loan to help build their credit.
When you take out and pay back a loan responsibly, this reflects well on your credit rating, boosting your score, and giving you more leverage for the future.
We’ll look at why this is true below in the credit score section.
Using your personal loan
A personal loan can be used for almost anything you need it for. Common uses include:
- Making a large event such as a wedding, ceremony, or fundraiser
- Making a large purchase such as a horse (we’re not kidding, you can get a loan specifically to buy a horse!)
- Helping consolidate credit card debt
- Paying off other debt such as student loans
- Making purchases that require a large cash payout up front
- Unexpected expenses such as medical emergencies
- World travel or vacation
Because this type of loan is easier to get than most, many people take advantage of the flexible terms and easy access to finance these expenditures.