In these times, most people report that they don’t have any savings, or that they’re living paycheck to paycheck. As such, the smallest of expenses that come up can throw us into a tailspin, unable to cope. That’s why more and more people have been getting a personal loan to pay for a range of events and circumstances.
People get personal loans to clear off debts, for house renovations, fixing car damages, medical expenses, purchasing electronic goods, financing vacations, and various other things. The rates of interest on credit cards are usually higher than that on personal loans, which is why many people believe it’s a better alternative.
While you can get a personal loan for several reasons, there are definitely some good and bad reasons for getting loans. Below, we’ll break it down for you.
When you should get a personal loan
- Consolidating Personal Loans: When you have several personal loans, you can get a single personal loan with a lower rate of interest to pay them off. For this, you can get debt consolidation help and with a bit of refinancing, you can considerably bring down your interest rates while also making your debts more manageable. However, the purpose of personal loan consolidation is to help you get out of debts.
- Emergencies: This largely refers to major unexpected emergencies such as sudden medical emergencies, car accidents, etc. If you don’t have an emergency fund, then getting a personal loan will help you take care of the financial gap at a low interest. Getting a personal loan, in this case, will incur a lower rate of interest than taking loans from hospitals or car body shops.
- Home Renovations: It’s usually a good idea to get a personal loan to help renovate or improve your home as this would increase your home’s market value. Furthermore, getting a personal loan will put you through a lower rate of interest than a credit card.
When should you NOT get a personal loan
- Extravagances: You should not use personal loans for personal extravagances or to splurge on comfort and/or entertainment. For example, you shouldn’t get a personal loan to finance a wedding that’s well beyond your means. Neither should you get a personal loan to buy high-end electronic goods. This will only put you under greater financial duress.
- Medical Expenses: Medical needs are a priority and they’re necessary. However, you can generally find a more fruitful and economical means of managing your medical expenses as compared to getting a loan which has a high rate of interest.
These are some of the basics of when you should or shouldn’t get a personal loan. While you can get a personal loan for most things, you should exercise caution while doing so.