Why loans are good

An origination fee is calculated as a percentage of the loan amount and it can reduce the total loan balance you actually receive. So if you're looking at lenders that charge an origination fee , you might have to adjust the amount of money you're requesting to accommodate for the cost of the fee.

Otherwise, you might consider some lenders that don't charge an origination fee at all, like LightStream or Discover , for example.

Of course, there are a ton of different options out there so comparing offers is one of the best ways to make sure you're getting a personal loan with the best interest rate and payment terms. You can use this comparison tool from Even Financial to determine your top offers. The service is free, secure and won't affect your credit score if you don't apply for a loan.

Editorial note: The tool is provided and powered by Even Financial, a search and comparison engine that matches you with third-party lenders. Any information you provide is given directly to Even Financial. Select does not have access to any data you provide. Select may receive an affiliate commission from partner offers in the Even Financial tool. The commission does not influence the selection in order of offers. Credit cards tend to carry higher interest rates compared to personal loans, which means you'll pay more overall when using a credit card to finance a purchase.

So according to Tayne, using a personal loan with a lower interest rate essentially reduces the cost of the item. Of course, the best way to make sure your personal loan carries as low of an interest rate as possible is to make sure you maintain a good credit score.

This is because you won't pay any interest on the credit card charges for the specified introductory period. But for other options, Select rounded up some other credit cards with interest-free intro offers lasting 15, 18 and even 20 months. Some of your expenses can be deducted from your gross income to reduce the amount of taxes you'll owe. In this situation, you'll pay interest on your personal loan and you may be wondering if the interest you pay is tax deductible , similar to the home mortgage interest deduction.

According to Tayne, interest paid on a personal loan is generally not tax deductible. However, it may depend on the purpose of the loan. If you're using it to cover business or education expenses like paying tuition , then the interest may be tax deductible.

One of the best advantages of using a personal loan to pay off your credit cards is the lower interest rates. With lower rates, you can reduce the amount of interest you pay and the amount of time it takes to pay off the debt.

Takeaway : Using a personal loan to pay off high-interest debt, like credit card debt, allows you to consolidate multiple payments into a single payment with a lower interest rate. If you need money for an emergency, using a personal loan instead of a payday loan may save you hundreds of dollars in interest charges.

According to the Federal Reserve Bank of St. Louis, the average APR for a payday loan is percent, while the maximum interest rate on a personal loan is typically 36 percent. Payday loans have short repayment terms, usually by your next payday, between two and four weeks. This quick turnaround time often makes it difficult for borrowers to repay the loan by the due date.

Borrowers are usually forced to renew the loan instead, causing the accrued interest to be added to the principal. This increases the total interest owed. Personal loans have longer term lengths and will generally cost the borrower much less in total interest. Best for : Borrowers with bad credit looking to avoid high-interest predatory loans. Homeowners can use a personal loan to upgrade their home or complete necessary repairs, like fixing the plumbing or redoing the electrical wiring.

Best for : Those looking to finance a small to mid-sized home improvement project or upgrade. Personal loan funds can help you move your household belongings from one place to another, purchase new furniture, transport your vehicle across the country and cover any additional expenses.

This way you can avoid raiding your savings or emergency fund. Best for : A long-distance move or those anticipating thousands of dollars in expenses.

Surprise medical bills are another common reason to take out a personal loan, especially if your doctor requires payment in full. Takeaway : Because they can be disbursed so quickly, personal loans are a good way to cover an emergency or unexpected expense. Personal loans allow you to purchase major household appliances and electronics immediately, especially if you need those appliances for regular use. Best for : Those looking to make a bigger household purchase now to save time and money in the future.

Takeaway : A personal loan can help you get new appliances as soon as you need them. A personal loan is one way to cover the cost of a car, boat, RV or even private jet.

Takeaway : Using a personal loan is better than depleting your savings or emergency funds when paying for larger expenses. Takeaway : A personal loan can help you finance all of your wedding expenses upfront, which can help you avoid dipping into your savings or emergency fund. Your average vacation might not cost enough to necessitate taking out a personal loan, but what about a honeymoon or a luxury cruise?

While a personal loan is a useful tool to finance larger or unexpected expenses, there are some situations where it may not be the best option. Before applying, consider your financial situation and the reason for taking out the loan. These situations are challenging to plan for, which makes affording the associated expenses a considerable burden.

A personal loan can help. You Need To Consolidate Debt One of the best reasons to get a personal loan is to consolidate other existing debts. A debt consolidation loan is a type of personal loan that can yield two core benefits. First, you boil all your disparate debts down to a single loan, making it easier to keep track of and pay on time. Second, you may be able to replace high-interest debts with a lower interest loan, which can cut down on how much interest you pay in the long run.

In each scenario, you need to weigh how essential the expense is. For instance, if your freezer breaks, you probably need to get a new one—whether you can afford to do so out of pocket or not. With a wedding or a trip, the pros and cons are more difficult to weigh, as there are likely opportunities to reduce expenses. Banks are probably one of the first places that come to mind when you think of where to get a loan. Credit unions , consumer finance companies, online lenders and peer-to-peer lenders also offer loans to people who qualify.

Quick tip: Many internet lenders have emerged in recent years. While personal loans can provide the cash you need for a variety of situations, they may not be your best choice. If you can pay off the balance before the interest rate goes up, a credit card may be a better option. These type of loans could provide the financing you need for larger loan amounts at low rates.

But beware: Your house becomes the collateral for these types of accounts.