Personal loans are a valuable financial tool that helps many individuals and families cover moving expenses every year. The main benefits include:
- Fast funding
- Low interest if you have good credit
- Flexible loan usage
- No collateral required
- You can preserve your savings
Whether a personal loan suits you depends on your moving costs and credit score. Make sure you take the time to evaluate your financial situation and choose a reputable lender if you decide to obtain a loan.
Many people face financial challenges when preparing to move. Whether you’re moving cross-country or just a few blocks away, the process can cost thousands of dollars. A financing strategy is to obtain a personal loan for moving expenses.
It’s important to know the pros and cons before obtaining a loan. Let’s review everything you need to know about covering moving costs using a personal loan.
Understanding moving expenses
Moving comes with numerous costs that individuals and families need to consider in advance. A local move costs around $1,200 while a long-distance move can cost up to $5,000.
Common moving costs
Transportation: A rental truck for moving can cost up to $2,000 depending on how far you need to transport your items and how big a vehicle is required.
Packing materials: Between boxes, bubble wrap, and specialty packing options, you may need to pay around a hundred dollars for packing.
Professional movers: It’s common to hire a moving company to help you with the move, especially if you need to transport many items. While local moves are cheaper, a long-distance move can cost between $2,000 and $12,000.
Storage fees: Storing items costs around $50 to $300, depending on the volume of items and location. If you’re looking for long-term storage, consider the monthly fees that will accumulate over time.
Travel costs: If you’re moving to a different city or state, you will need to consider travel costs. Airfare, gas, lodging, and meals can go from $100 to over $1000 depending on your chosen accommodations.
Other moving expenses
Other than the basic moving costs, you might also need to pay for temporary housing, utility setup, connection fees, as well as house maintenance or renovation. These variable costs can catch you off guard. A personal loan is a quick way to receive the necessary funding so you can ensure a comfortable and safe move.
The role of personal loans
Quick access to funds
Personal loans can offer you immediate access to a lump sum of funds. This quick funding is a great advantage to personal loans, especially for those who need to adhere to a payment deadline for their move.
Flexible use of funds
Compared to purpose-specific loans and financing methods, personal loan funds can be used for a wide range of needs and goals. You can use the funds to cover expenses for professional movers, transportation, storage, and more. With the help of these loan funds, you will be able to afford the high upfront costs of moving.
Competitive interest rates
Compared to traditional financing tools like credit cards, personal loans can have lower interest rates. This lets you avoid a high accumulation of interest.
However, be aware that if you have poor credit, your loan options may be limited. Lenders judge your loan application based on your creditworthiness and financial stability. If your credit score is low, the interest rates you qualify for will be higher.
Avoid using personal savings
With loan funds available to you, you won’t need to disrupt your savings. This lets you better manage any unexpected incident that requires you to dip into your emergency fund. When managed properly, a personal loan can boost your financial security.
Types of personal loans
A secured loan is backed by collateral, which is an asset accepted by the lender, such as a car, property, or jewelry. Since you’re securing the loan with valuable collateral, you can obtain better rates and terms. It is also easier to qualify for a secured loan than an unsecured loan if you have poor credit.
If you want to take out a secured loan for moving expenses, be aware that failing to pay back the loan risks the lender seizing your collateral assets.
Unsecured personal loans
Most personal loans are unsecured, which means you don’t need to offer any assets as collateral. This reduces the overall risk on you when borrowing money. However, unsecured loans will be more difficult to qualify for if you have poor credit or excessive existing debt obligations.
Traditional bank loans
Bank personal loans may have lower interest rates than the rates of other loan providers. However, the application process for bank loans typically requires more time and paperwork. You need to meet stricter eligibility criteria as well for bank loans.
If you have good to excellent credit, traditional bank loans may be the most cost-effective financing method for your moving expenses.
Borrowing money from an online lender is convenient since you can do it from the comfort of your home. The application and funding processes are both quick. If you urgently need funds to cover move-related expenses, obtaining a loan from an online lender may be the most expeditious and suitable option.
A risk in applying for loans with an online lender is that the interest rates may be higher and you may be more susceptible to predatory lending scams online.
Credit union loans
Credit unions are member-owned, community-focused financial institutions. You need to meet the membership requirements to join a credit union.
After becoming a member, you can apply for a loan from your credit union. Since credit unions aim to help their members who are facing financial challenges, the interest rates they offer may be lower than the average loan rates. Many credit union members report positive borrowing experiences, along with thoughtful and helpful customer service.
Loan application process
When applying for a personal loan, lenders will request certain documentation. Many lenders provide an online checklist of their requirements. Here is what you can usually expect.
- Proof of income (e.g. pay stubs, W-2 forms, and tax returns)
- Government-issued photo ID
- Proof of address (e.g. utility bills and mortgage/rent statements)
- Employment verification letter
Prospective lenders will evaluate your application by performing a credit check, also known as a hard inquiry. Each of these hard inquiries will dip your credit score by up to five points. During the credit check, lenders can see your full credit report. This includes:
- Your name and date of birth
- Your address history
- Details of your credit cards, loans, and outstanding debt
- Late payments and loan defaults
Tips for a successful loan application
Here are some guidelines to follow that can help you improve your chances of loan approval.
Boost your credit score: A credit score above 670 is considered good and will let you qualify for the average personal loan. A credit score above 800 is excellent. Before applying for a loan, try to increase your credit score so you can receive better loan offers.
Provide accurate financial information: Double-check all the information you provide the lender. If there are mistakes or missed details, the application may be delayed or rejected.
Be transparent about your loan purpose: If the lender discovers you’re using the loan funds for a non-approved purpose, it can cause serious financial and legal problems. You could end up losing your loan funds immediately and even risk a prison sentence.
Benefits of personal loans for moving expenses
If unexpected moving expenses arise, a personal loan can help you cover the urgent costs. Compared to traditional financing methods or saving up, obtaining a personal loan is a faster way to get the funds you need. The application process is streamlined and accessible.
Personal loans can be used for a wide variety of loan purposes. You cover all the expenses needed for your move, such as transportation and storage costs. The remaining loan funds can be freely used with few usage restrictions. This flexible fund usage of a personal loan makes it preferable for those unsure of the exact costs they will need to cover.
No collateral required
Most personal loans are unsecured, so you don’t need to put up any assets as collateral to secure the loan. This lowers the overall risk you assume when obtaining a loan.
Avoid high-interest credit cards
For their convenience, credit cards are a popular financing method for moving expenses. However, credit cards often come with high interest rates. If you can’t pay off the outstanding balance quickly, you can quickly end up with snowballing interest and credit card debt.
Fixed repayment schedule
Personal loans usually operate on a fixed repayment schedule. Each monthly installment is the same, which facilitates repayment and budgeting. If you often struggle with managing debt obligations, the predictability of installment loans can benefit you.
Risks and considerations
Personal loans are a debt obligation so it is essential to consider the total cost of interest. It’s a good idea to use an online interest calculator to determine how much interest you will accrue over the loan repayment period.
Applying for and obtaining loans can affect your credit score. Each personal loan application can cause a small drop in credit score. After receiving your loan funds, making timely payments is critical. Missing loan payments can damage your credit by up to a hundred points. Defaulting on a loan would show up as a serious negative item on your credit report, hindering your chances of receiving credit extensions and loans in the future.
On the other hand, an active personal loan can also serve as a valuable credit-building opportunity. By consistently paying the installments on time and in full, you’d provide to creditors that you’re a reliable borrower with good financial management skills.
Consider alternative funding options
Crowdfunding: Sharing your journey with an online community can be a worthwhile way to raise funds for your move. Consider platforms like Kickstarter and GoFundMe. It’s best to not over-rely on crowdfunding since it can be challenging to receive enough financial support.
Employer assistance programs: Your employer may offer financial assistance programs to those who are moving for work purposes. Check with your employer to see if they provide relocation packages, including coverage for moving expenses, temporary housing, and tax assistance.
Friends and family loan: A low- or no-interest option is to borrow money from your friends and family. However, checking that everyone is on the same page is crucial. Otherwise, introducing a debt to your social dynamic can become a frustrating stressor.
Loan repayment strategies
Creating a budget
Before moving, it’s essential to plan out your moving and borrowing budgets. Look at your monthly income, spending, and existing debt obligations. Calculate how much you can free up for loan repayment.
Prioritizing high-interest debt
It’s wise to prioritize the repayment of your loan so you can avoid paying extra interest. Treat paying back loans as a necessity, similar to utility bills, rent, and mortgages.
If you have numerous debt obligations, it’s an effective strategy to prioritize the one with the highest interest rate and make the minimum payment on the other ones. This debt avalanche method lets you quickly eliminate the debt with the highest interest risk.
Consolidate or refinance
Refinancing your loan essentially lets you replace your current debt with a new loan, one that ideally has a more manageable repayment schedule and lower interest rates. Consolidating or refinancing your debt can help give you breathing room in your debt repayment schedule, which is valuable if you’re busy getting used to your new home.
Seeking professional financial advice for optimal repayment plans
When confused and facing financial challenges, expert advisors can offer valuable guidance. A financial advisor or credit counselor is helpful when it comes to creating debt management strategies that take into account your individual needs.
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