Six traps to avoid when getting a personal loan

Don't fall for these 6 personal loan traps.

12 January 2022

Personal loans can be a very helpful financial product, which you can use for a range of things, from consolidating debt to enjoying a much-needed holiday.

That said, there are also six traps you need to be wary of when you’re thinking about taking out a personal loan.

1. Getting a loan you don’t need

First, ask yourself if you even need the loan. For example, if you’re planning to buy something with the money, do you need that particular thing? And, if you do, is it something you need to purchase right now, or could you wait until you’ve saved up the money?

2. Failing to look at the complete financial picture

If you do need a personal loan, it’s important you evaluate it in the context of your entire financial position, rather than as a one-off action. If you have a steady job and you’re free of debt, you should be able to handle a personal loan. But if your income is unstable and you have other debts, a new personal loan could potentially put you in a trap you will struggle to escape.

3. Borrowing too much

If you borrow more than you really need, you’ll be forced to make unnecessary interest payments.

4. Going straight to your bank

There are many lenders offering lots of different personal loans – so what are the odds your bank happens to have the best personal loan for your situation? A Vie Financial Credit Advisor can help you compare options and choose a personal loan that has the right features, low fees and a competitive interest rate.

5. Focusing solely on the interest rate

When you take out a personal loan, the interest rate is important, but it’s not the only thing you should consider. For example, there are times that a higher-rate personal loan is cheaper in the long run than a lower-rate loan because it has lower fees. Also, there are times it’s worth paying a higher interest rate if it means gaining access to better features such as “fee free” additional and early repayment options.

6. Missing repayments

If you fall behind on your repayments, it might damage your credit score, which will make it harder for you to take obtain finance in the future.

Need a personal loan? Vie Financial can help you find the right personal loan from the right lender. Call us on 1300 400 843 or fill in this enquiry form to discuss your options.