reasons to get a personal loan

6 Reasons to Get a Personal Loan and Personal Loan Types

In today’s changing financial landscape, where the cost of living continues to rise, we often encounter situations where our financial goals and expenses outpace our income and savings. These situations can range from unexpected medical expenses and ambitious home improvement projects to a long-awaited dream vacation or high-interest bills that never seem to reduce. In these circumstances, a personal loan can become a beneficial tool to bridge the gap. In this blog post, you will learn the reasons to get a personal loan and how it works.

There are many kinds of personal loans (such as secured, unsecured, and personal lines of credit), and the flexibility, affordability, and versatility they offer make them an attractive option for various financial needs. To make the most of it, however, you need a clear and fundamental understanding of how a personal loan works: how it should be used and how it should not be used – that way you can make the best financial decision for you and your family.

Benefits of a Personal Loan

benefits of a personal loan


Personal loans can be a smart financial move when used thoughtfully. There are several benefits of a personal loan, including:

Bill Consolidation

Personal loans can help streamline your finances by consolidating high-interest debts – such as credit card balances and other unsecured loans – into a single, more manageable monthly payment. This not only simplifies your bill structure but can usually reduce your overall interest payments.


Affordable Interest Rates

Speaking of interest, compared to credit cards, a personal loan often comes with lower interest rates, especially for borrowers with good credit scores. This can lead to significant savings on interest charges over time and help pay off debt faster.

Fixed Monthly Payments

Personal loans typically have fixed monthly payments, making it easier to budget and plan for your financial future. This stability can help you avoid the revolving debt trap that credit cards create.

No Collateral Required

Some personal loans are unsecured, meaning you don’t need to put up collateral to qualify. This reduces the risk of losing valuable assets if you encounter financial difficulties. (A secured personal loan, however, usually offers lower interest rates and payments.)

Flexible Use

Personal loans have a wide range of uses, from funding a home renovation to covering medical expenses or even starting a small business.

It’s essential, however, to approach a personal loan (and any loan) with caution. You should only consider taking one out if you know how you’ll use the funds and have a reliable plan for repaying the loan on time.

Are Personal Loans Bad for Your Credit Score?

Many people worry that taking out a personal loan might harm their credit score. While it’s true that opening a new credit account can have an initial impact on your credit, the long-term effects depend more on how you manage the loan.

Here’s how a personal loan can influence your credit score:

Initial Credit Inquiry

When you apply for a personal loan, the lender will perform a hard credit inquiry, which can temporarily lower your credit score by a few points. However, responsible management of the loan can help you eventually recover these points.

Payment History

Your payment history is a significant factor in your credit score. Making on-time payments on your personal loan can have a positive impact, demonstrating your ability to responsibly manage debt.

Credit Mix

Lenders like to see a diverse mix of credit types on your credit report, including both revolving credit (e.g., credit cards) and installment credit (e.g., personal loans). Having a personal loan may improve your credit mix, which can actually benefit your score.

Debt Utilization 

If you use a personal loan to pay down high-interest credit card debt, it can lower your credit utilization ratio, which is the amount of credit you’re using compared to your total credit limit. A lower utilization ratio can boost your credit score.

In short, if you make payments on time and manage your loan responsibly, it can ultimately improve your credit profile. However, like any loan, if you miss payments or take on too much debt, it will have adverse effects.

What Shouldn’t a Personal Loan Be Used For?

While personal loans are versatile, there are specific uses that aren’t recommended. It’s wise to avoid using a personal loan for:

Non-Essential Expenses

Personal loans should not be used for luxury or non-essential items like designer clothing, the latest smartphone, or season tickets for your favorite sports team. Using a personal loan for such expenses can lead to unnecessary debt and financial stress.


Using a personal loan to invest in stocks or other speculative ventures is risky. If your investments don’t perform as expected, you may struggle to repay the loan.

For example, say you decided to invest in a volatile cryptocurrency market using a personal loan. If the market takes a downturn, you’ll not only potentially lose your investment but also be on the hook to repay the loan with interest, leading to significant financial setbacks.

Gambling and Speculation

You should definitely avoid using personal loans for gambling or speculative activities. These endeavors are highly unpredictable and can result in heavy financial losses, negatively impacting your overall well-being.

Regular, Recurring Expenses

A personal loan should not be relied upon to cover ongoing monthly expenses, such as rent or groceries. If you find yourself in this situation, it’s essential to review your budget and explore alternative solutions, such as reducing expenses or finding additional income streams.

If you regularly use personal loans to cover basic living expenses like food, housing, and utilities, it can easily lead to a cycle of debt that becomes increasingly challenging to escape.

Reasons to Get a Personal Loan

reasons to get a personal loanNow, let’s explore specific reasons to get a personal loan. Below are some examples of why taking out a personal loan can be a sound financial decision:

1. Bill Consolidation 

One of the most popular reasons to get a personal loan is consolidating high-interest debts, especially credit card debt. According to the Federal Reserve, the average credit card interest rate is 20.68% – about twice as much as your average personal loan rate. 

When you consider that the average credit card debt in America is the highest since 2019 ($5,733 according to the Federal Reserve), and the average overall debt is $101,915, combining multiple debts into a lower-interest personal loan with a single, more manageable payment sounds pretty enticing – and smart.

2. Home Improvement

If you’re looking to renovate your home or need to make necessary repairs, a personal loan can provide the funds you need without using your home as collateral. This can be a prudent choice, especially if you anticipate a high return on investment when selling or refinancing your home.

Say you want to update your kitchen because the cabinets are outdated and the oven or fridge is on its last legs. You can use a personal loan to fund the renovation, which will likely increase the value of your home while enhancing the living space.

3. Emergency Expenses

Unforeseen medical bills, car repairs, or unexpected job loss can disrupt your financial stability. A personal loan can step in as a financial safety net during emergencies, helping you cover immediate needs.

Say, for instance, that you face an unexpected medical emergency due to a car accident that requires surgery and hospitalization. You can use a personal loan to cover medical expenses and car repairs that aren’t covered by insurance – or until insurance benefits or a settlement kicks in.

4. Education

Personal loans can be a valuable resource for financing education, whether it’s for your own career development or your child’s college tuition. With fixed interest rates and predictable monthly payments, personal loans can make education expenses more manageable.

5. Small Business Financing

If you’re an entrepreneur looking to start a small business, a personal loan can provide the necessary capital to get your venture off the ground. It’s crucial, however,  to carefully consider the risks and potential rewards of using personal funds for business purposes and ensure you have a sound strategy and plan for success.

6. Vacations

Did you know that taking a vacation can positively impact your life on multiple fronts? Shocking, right? But in case you need proof that taking a break from work can improve mental health and your job performance, here’s the latest data:

A personal loan, especially one designed especially for vacations, can give you long-term benefits in the form of enhanced well-being and work performance.

Types of Personal Loans at Members 1st: Unsecured Personal Loan, Personal Line of Credit, Bill Consolidation & More!

There are many reasons to get a personal loan. It is a powerful financial tool when used wisely. They offer the flexibility to address various financial needs, from debt consolidation to pursuing important life goals. Here are the different kinds of personal loans that Members 1st of NJ offers:

1. Vacation Loan

This is a lower-limit type of loan you can use for travel expenses with a maximum loan amount of $3,000, a low-interest rate, and a repayment period of 18 months.

2. Secured Personal Loan

Secured personal loans offer the advantage of lower interest rates and monthly payments because your loan is secured by your CDs or savings. These are fixed-rate loans with terms of up to 60 months, and you can borrow up to $20,000.

3. Unsecured Personal Loan

Unsecured personal loans, on the other hand, do not require any collateral, and they still offer fixed rates, terms of up to 60 months, and borrowing up to $20,000.

4. Personal Line of Credit

This is another type of unsecured personal loan where you can borrow up to $20,000. You only draw money when you need it and only pay interest on your outstanding balance. A personal line of credit, however, comes with a variable revolving rate.

5. Bill Consolidation Loan

This is one of the most popular reasons for taking out a personal loan. High-interest debt is a burden on budgets and financial well-being. Using a bill consolidation loan to lower interest and wrap multiple bills into one payment eases stress and helps pay down debt faster.

For added peace of mind, Members 1st of NJ offers Borrower Security, an optional loan payment protection product that helps you in the case of life emergencies such as loss of life, disability, or involuntary unemployment.

Remember, the key to financial success lies in informed decision-making and disciplined money management. You can harness the benefits of personal loans while safeguarding your financial health by approaching personal loans with a clear plan, responsible borrowing, and a commitment to making on-time payments. 

For more information contact a Members 1st of NJ representative or visit our personal loans page.