The Best and Worst Ways to Use a Personal Loan

It is not always a bad thing to borrow money and it can actually be very helpful in certain situations. A loan can help you to build your credit, buy something that you need and gives you the freedom to arrange payments that you are able to afford. However, before you take a personal loan, you need to consider what you will be using it for and if it will be beneficial or if it will just leave you in more debt.

The Best Ways to Use a Personal Loan

Debt Consolidation

Debt consolidation is where you move all your debts into one new loan, which means you won’t need to juggle multiple accounts anymore as you just need to focus on the one loan.

You are able to use a personal loan to pay off all your creditors, which will then consolidate your debt and you will only need to pay the personal loan back.

Personal loans will usually have a better interest rate than a credit card and your monthly repayment might be lower because the term of the loan will be longer.

Buying a Home

A personal loan can also be used to help with the purchase of a home. You can use the loan to make the deposit on a house or to help with other expenses like closing costs.

This is seen as a good investment because you will be able to build equity in your home as you make your mortgage payments. Once, you have finished paying the mortgage, your home will become a valuable asset.

Home Maintenance

Your home is a good investment and it is important to protect it and to make sure it stays in good shape. This will include maintenance and repairs for any unexpected problems. If your roof is leaking, for instance, and you are not able to afford it then you can take a personal loan to cover this cost. It will then prevent further damage to your home and the value of your home will go up.

Repairing a Car

A car is another big investment, as it gives you the freedom to go where you need to and will affect your job and your life.

If you need a new car to get to school or to work, then you can use a personal loan to buy a car. You can also use a car loan, which is secured by the car. You should only get a car that is reasonable for your income level.

You can also use a personal loan for car repairs because if you don’t have your car, your job will be affected.

Starting a Business

It can be pretty expensive to start your own business and many of us will not have the funds available to do this, which is where a personal loan comes in. New businesses can be risky, but you are using a personal loan to create a way to make money, which will help you to pay your loan back.

Medical Expenses

Your health is vital and it is a good idea to invest to make sure that you stay healthy. Medical expenses can be extremely high and often your insurance or medical aid won’t cover all of these. If you are struggling to pay your medical bills then you can get a personal loan to pay for them.

All the good ways to use a personal loan involve investing in things that will benefit you in the long term. However, there are bad ways to use a personal loan.

You might be wondering about how you shouldn’t use a personal loan…

Worst Ways to Use a Personal Loan

Holiday

It can be very tempting once you have a personal loan to go away on the holiday of your dreams, but using a personal loan for this, is one way, you can be sure that you will end up in debt.

Using a personal loan to go on a once in a lifetime trip is not a good idea, because when you come back you will need to pay off the loan and this can take years. Is a two-week holiday really worth years of monthly payments?

You should only really take a holiday when you have some extra money to use.

Extravagant Weddings

Another bad way to use a personal loan is to use it for a lavish wedding. There are actually many couples that will go into debt for their wedding day. Getting married should be a memorable experience, but you shouldn’t start on the wrong foot.

Keep your wedding spending in control and don’t feel like you have to go overboard for it, because you will need to pay it back.

If you really want a lavish wedding then you should save for it, instead of going into debt for it.

Holiday Season

The holiday season can be a hot bed for temptation because you want your loved ones to have the best Christmas ever, but don’t fall into the trap. You should not get a personal loan in order to buy gifts, because you will be in debt for the rest of the year.

Gambling

If you are going to go into debt then it needs to have a reliable outcome. You should then not get a personal loan for when the outcome is out of your control like gambling, which is highly unpredictable.

Stock Market

This is also true of the stock market, which is like gambling. The stock market is volatile and you are able to lose everything in a matter of minutes. You may have the funds to invest in the stock market one day, but you should not take a personal loan in order to do it.

Everyday Expenses

If you have bills that are piling up, you need to buy groceries or clothes then you shouldn’t even consider taking a personal loan to pay for these. Instead, you should draw up a budget and see what you are able to cut back on in order to be financially sounder.

Wait…If you want a personal loan there is more to know…

Finding the Right Personal Loan

Check Your Credit Score

The terms that you are able to get for your personal loan will depend on your credit. You will be able to borrow more and pay less for a loan when you have a good credit score. You should then check your credit score before you start shopping for a personal loan.

Compare the Interest

Personal loans have two kinds of interest rates. The first is variable rates, which go up and down depending on the market. A fixed interest will remain the same through the term of the loan, which can help you to budget.

Fees and Penalties

The overall cost of your loan will be affected by the fees and charges. You need to know and calculate origination fees, loan approval fees, prepayment fees and any other fees that the lender charges.

Shop for a Loan

Before you start looking for a personal loan, you need to ensure that the lender you are using is trustworthy. You should look for reviews of the lenders and find out what others are saying.

You should also take the time to compare lenders, so you can find the best personal loan that is available. You are able to find sites that will source the best personal loans for you and allow you to easily compare them.

Personal loans can help in all sorts of situations, but they should only be used on things where you will gain a benefit at the end of it. You should not use a personal loan for careless spending, as this will only create debt and not give you anything valuable in return.