How a Personal Loan Could Help You Get By During COVID-19

A woman sitting at her kitchen table reviewing paper bills with a laptop open in front of her.

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Americans are struggling financially during the COVID-19 pandemic. Millions have lost their jobs. Many have seen their incomes decline. And others are dealing with sudden expenses, like child care because schools are remote or the additional technology costs of working from home.

If you're having a hard time covering your basic bills or paying for sudden expenses and you don't have a savings account to tap, then borrowing money may be your next best bet. And in that regard, a personal loan can really help.

What's a personal loan?

A personal loan lets you borrow money for any reason you might need it. You can take out a personal loan to pay off another debt, cover home repairs, or simply keep up with your general bills.

Personal loans are unsecured -- they're not tied to a specific asset, like your home. This means that to qualify for one, you'll generally need a strong credit score. That said, some personal loans are specifically designed for borrowers with poor credit.

How a personal loan can help during these difficult times

The great thing about personal loans is that they're flexible -- you can use them for any purpose and you don't need to own a home to qualify. Furthermore, many lenders offer them. You can take out a personal loan at a bank, credit union, or even apply for one online.

The interest rate you'll pay on a personal loan is generally much lower than that of a credit card. This especially holds true if you have good credit. As such, a personal loan is a relatively affordable way to borrow. And, personal loans applications are usually approved quickly. In fact, you might see your loan proceeds land in your bank account within a week of your application.

Should you get a personal loan during the pandemic?

Right now is not the time to take out a personal loan to buy a large-screen TV, take a vacation, or update your kitchen with new countertops. On the other hand, it does pay to take out a personal loan if:

  • You're falling behind on your essential bills, like rent, groceries, or utilities.
  • Your child care costs have increased temporarily and you're struggling to pay them.
  • You've been putting off a medical procedure due to its cost, and are putting your health at risk. The last thing you need during a pandemic is for a pre-existing health issue to escalate.

It's also not a bad idea to take out a personal loan if you have costly credit card debt. Imagine you owe $8,000 on a credit card charging 24% interest. If your credit score is good, you might snag a personal loan at just 7% or 8% interest. If you used a personal loan to get rid of that credit card balance, you could reduce your interest costs and so pay off the debt in a more affordable fashion.

Finally, a personal loan might bring you some peace of mind at a time when your finances are shaky. If you're out of work or have seen your income decline and you don't have savings, it can be scary to get down to your last few dollars in your checking account. A small personal loan could help you breathe easier and give you some wiggle room if there's a month when you need to spend a little extra on groceries or school supplies for your children. But bear in mind that your lender may want to see proof of income to know you can pay the money back.

Of course, as is the case with any type of loan, failing to keep up with your personal loan payments could damage your credit, so you'll need to be careful. On the other hand, some lenders are offering flexible borrowing terms on personal loans during the pandemic, like low interest rates and deferred payments. If you're in a particular crunch right now, it pays to see what options are available to you.

Our Picks of the Best Personal Loans for 2020

We've vetted the market to bring you our shortlist of the best personal loan providers. Whether you're looking to pay off debt faster by slashing your interest rate or needing some extra money to tackle a big purchase, these best-in-class picks can help you reach your financial goals. Click here to get the full rundown on our top picks.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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