3 Creative Ways To Use a Personal Loan That Won’t Hurt Your Finances
Written by
Brooke Barley
Edited by
Jenna Klaverweiden
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Though some people might associate any type of loan with bad debt, that doesn’t have to be the case. A personal loan can be used to make a big purchase without wrecking your finances in the process. It can even boost credit in some cases if the payments are made on time.
GOBankingRates spoke to Yehuda Tropper, CEO of Beca Life Settlements, to find out the unique ways personal loans can be advantageous. Here are some instances where a personal loan might be your best option.
Reducing Hospital Bills
Tropper has a clever way that taking out a personal loan can help lower the cost of a hospital stay.
“Hospitals commonly cut 30% to 50% [off the bill] if you pay the balance the same day. Borrowing at single-digit rates, settling the bill, and then repaying the loan over 12-24 months can cost far less than the original invoice — and shields your credit from collections,” he said.
So in this case, paying the hospital bill over time without a loan would actually be more expensive than taking out a loan to do so.
Pre-Paying Insurance or Tuition
Some insurance companies or colleges will offer a discount if the full payment is made upfront rather than gradually. If you don’t have the money to pay in full, Tropper recommended taking out a personal loan to get the discount.
“Some insurers and colleges knock 2% to 10% off when you pay the full year rather than monthly. A modest personal loan converts that discount into an immediate return that often beats the loan’s interest, then repays itself through the lower ongoing cost,” he said.
Bridge-Funding a Life Insurance Policy
With his experience in the life insurance business, Tropper has seen the value it can provide for customers, and that it could be worth taking out a personal loan for. “A small, short-term loan can keep the contract in force long enough to explore a life settlement sale, which often returns far more than the surrender value. Think of it as gap financing on an asset you already own,” he said.
When it comes to personal loans, Tropper said it’s best to weigh whether it’s more expensive to pay over time rather than all at once. If it’s much better to pay upfront, Tropper said the personal loan is worth it. “The common thread is using the loan as temporary leverage to unlock a larger, guaranteed financial benefit,” he said.
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