When you should get a personal loan … and when you shouldn’t?

So while there’s no one-size-fits-all rule as to when you should (and shouldn’t) take out a personal loan, here are some situations when it can be a good or bad idea to do so.

31 August 2021

A personal loan can be used for pretty much any purpose. While this is often a good thing, sometimes it can lead to decisions that don’t make financial sense.

So while there’s no one-size-fits-all rule as to when you should (and shouldn’t) take out a personal loan, here are three situations when it can be a good idea.

1. Consolidating debt

Personal loans can come with lower interest rates than other forms of debt such as credit cards. So if you’ve been hitting the plastic a bit too hard, rolling the debt into a personal loan could help you pay it off faster.

2. Financing home improvements

Renovations can add value to your home. But a new kitchen or bathroom doesn’t come cheap. A personal loan could help you get the project off the drawing board – while spreading the cost over anything from one to seven years.

3. Paying for unexpected expenses

Life doesn’t always go to plan, whether that’s your car blowing a gasket or your wisdom teeth playing up. A personal loan could help you pay for these unexpected surprises in the absence of an emergency fund.

When you shouldn’t take out a personal loan?

There are a few times when it’s usually better to avoid a personal loan.

These include when you:

1. Qualify for a cheaper alternative

Before you take out a personal loan, make sure it’s the best way for you to borrow money. For example, a secured car loan might be a cheaper way to pay for a new set of wheels.

2. Use it to pay for wants, not needs

While you can borrow money for almost anything, that doesn’t mean you should. Sometimes it can be better to save for items that take our fancy, rather than get into debt.

3. Won’t be able to keep up with the repayments

You should only take out debt when you’re confident you can afford the repayments. That’s because a missed payment might lead to financial penalties and lower your credit score – potentially making it harder for you to be approved for a loan in the future.

Considering taking out a personal loan? Vie Financial can help you work out if it’s the right decision for you. Call us on 1300 400 843 or fill in this enquiry form.