Personal Loan Uses and Exclusions
A personal loan is a fixed amount of money you can borrow from banks, credit unions, or online lenders. It can be a convenient way to get funds fast to cover many different expenses. But what can’t they cover? Who decides what borrowed funds can be used for and what uses are restricted?
Loans that require collateral are secured, while those that don’t are unsecured. Most personal loans are unsecured and may be used for a wide variety of reasons. The amount you can borrow is also flexible, ranging from hundreds of dollars to tens of thousands. You repay what you borrow in installments (usually monthly) over a determined term of months or years, and the interest rate is often fixed. If you’re able to pay off your loan before the end of the term, most lenders won’t charge a fee and you can save on interest costs. How fast you receive your loan and whether or not you’re charged fees (such as an origination fee) depends on which lender you work with.
How can you use personal loans?
Whether you’re trying to cover a necessary expense or achieve a financial goal, a personal loan could be a good option to get the funds you want. There are many ways to use a personal loan, including:
Consolidate/pay off debt
Major life events (wedding, graduation, funeral, moving, birth/adoption of a child)
When can’t you use a personal loan?
There’s quite a bit of flexibility in how you can use your personal loan. But there are some situations in which lenders will not allow you to use your loan.
Business costs. There are specific business loans you can apply for. Plus, a personal loan may not provide the amount of capital you need, nor offer the best rate or repayment terms.
Making a down payment on a home. Mortgage lenders don’t allow you to be responsible for paying back two loans at once.
College tuition and fees. Federal student loans are the recommended way to borrow for education. Any lenders that allow you to put your personal loan toward tuition have to meet strict regulations.
Gambling or illegal activities.
Before taking out a loan, be sure to check with the bank or lender on whether there are restrictions on how you can use your money. If you attempt to use your loan funds to pay for an expense or purpose that is prohibited, you violate the contract between you and the lender and may have to repay the entire loan, plus interest, immediately.
Want to know how a personal loan could help you cover your needs or fund your goals? Discuss your options with a Lendmark loan expert today. Contact us online or visit your local branch.