4 Smart Ways to Use a Personal Loan

When everyday costs are high, even well managed finances can start to feel tight. In some cases, a personal loan can help bring budgets back into balance by introducing more structure with fixed payments, a clear payoff date, and fewer surprises competing for your paycheck. And, by making monthly finances easier to manage, a personal loan could also give you—and your wallet—a little breathing room.

Below are four smart ways to use a personal loan. Or if you’re pretty sure this is right for you, check out some loan options and rates.

1. Debt Consolidation

Personal loans typically have lower interest rates than a credit card, so if you're carrying an ongoing credit card balance, you may be able to save money on interest charges by taking out a personal loan to pay them off. Consolidating debt in this way could also lower the amount of interest you owe, add the convenience of a single monthly payment, and in some cases, help you pay off your total debt in a shorter period of time. (Think of those notices you see on your credit card statement showing how long it would take to pay off your balance making only the minimum required monthly payment.)

Another common use is to refinance your auto loan. If you purchased a car in the last year or so and have a high interest rate on your loan, you might ask your lender if they could offer you better terms.

2. Home Improvement

In our island home, repairing a roof or fixing up termite damage can be a normal part of keeping your home in good shape. Likewise, replacing windows (especially those frozen jealousies) or adding air conditioning to ease the summer humidity might also be on your home improvement wish list. Taking out an unsecured personal loan can be a straightforward, accessible way to invest in your home, boosting its value and increasing your equity.

One thing to note: if you own a home, consider a personal loan for homeowners or a home equity line of credit, also known as a HELOC. Both could offer you lower rates and more financial flexibility.

3. Large Purchases

If you need to make a large purchase such as an engagement ring or a living room set, a personal loan can help you break the cost down into smaller payments over time. This can help to make the cost more manageable, plus the interest rate is likely to be lower than if you'd used a credit card for the purchase. You’ll also be able to enjoy the item now, rather than waiting until you've saved up enough money.

4. Emergency Medical Expenses

We don't like to think about medical emergencies, but accidents and illnesses can happen. And when they do, it's usually when you least expect it. While a good health insurance policy is a must, it can be reassuring to know that you can use a personal loan to help pay off medical debt, high deductibles and out-of-network charges.

Other tips for using a personal loan

• Remember, late or missed payments can lower credit scores. Automating payments each month could help keep you on track. If you're unable to pay your bills on time, consider other options.
• Look carefully at the fees that can be associated with personal loans, such as origination or processing fees, application fees or late payment fees before you make any decisions.
• You could pay down personal loans faster and save on interest by making more frequent payments or making larger payments when you get a bonus or tax refund. But make sure your loan terms don't include a prepayment penalty, which can ding you if you pay down the loan too quickly.
• Compare the annual percentage rate (APR) of your personal loan while shopping around. The APR will include the interest rate and certain fees.

Ready to get started?

You can easily apply online for a Bank of Hawaii personal loan. Or, if you’re a homeowner or are unsure which loan is best for your situation, book an appointment with a local financial expert.