Lenders will often ask you what you’re going to use a personal loan for, but it’s also not uncommon for a personal loan to be used for something else.
Why Are You Asking For A Personal Loan?
Personal loans are often used to pay debt off such as medical bills, credit cards, etc. Lenders will ask you for what reason you’ll be using the money. Why do they ask this question? It’s because they want to cover themselves in cases of liabilities. They want to make sure that it’s an acceptable risk to the bank. Although most people get a personal loan for consolidating debt, they may deny the application for a personal loan if they feel you’re too much of a risk.
If your credit card bill is near the limit or you’ve made dubious investments in the past, the bank may deny your loan application.
While banks can watch how the money is being spent, you should watch yourself. Don’t take the money and put it into the stock market, hoping it works in your favor. You also don’t want to use a personal loan to take a vacation.
Will Your Reason Affect The Bank’s Decision?
The initial and now subsequent reason for the personal loan won’t affect the approval process. However, you should be mindful of what type of loan to get, as you may not really need a personal loan.
For example, you wouldn’t take out a personal loan to pay for a vehicle or make necessary home renovations. Other loans are available for this reason. If money is needed for these reasons, it’s best to find a loan suited for that particular reason. After all, auto loans have lower rates than personal loans. Home equity loans can help finance a home improvement.
Financial intuitions will ask for the primary reason for the loan, as they may have restrictions on how it can be used. For instance, some lenders will not permit a personal loan to be used for a college education.
There’s no way to track how you spend the money, so they’re basing the answers you give them on your word. If the loan was originally for a debt consolidation for credit cards and now you need it for medical bills or car repairs, that’s fine.
If you’re concerned that you’re not using the loan correctly, you can always reach out to the lender to let them know what’s going on. They may or may not decide to loan you the money you need, but it’s always a good idea to ensure the money is being used properly.