Tuesday, January 2nd, 2018
Personal loans can be a positive opportunity to fund important purchases but, in some circumstances, applying for a personal loan isn’t always a great move.
Just because you qualify for a personal loan doesn’t mean that should necessarily get one.
Whether choosing a personal loan is the right thing for your own situation, should be based on your current financial situation as well as your future financial goals.
If borrowing really is the best solution for your needs, it’s smart to do your research and shop around with a professional finance broker who can present you with all the options and different interest rates on offer.
Sometimes, the loan product that makes the best sense for your personal circumstances is not always a personal loan and by being aware of the other finance offerings in the market, you may choose a better finance option. The truth is that, whatever type of loan you do end up taking out, it does mean more debt – and that requires some careful consideration.
Here are 4 times when taking out a personal loan may not always be the smartest option:
A car loan is different than a personal loan because it uses the car that you’re buying as collateral if you are unable to meet all the repayments. Can’t repay your debt on time? The lender generally has the right to repossess your vehicle to recover the funds it lent you.
Just be careful of car loans offered at the dealership. You may have heard their offers of 1% finance but just beware, as there are often extra fees built into the amount financed and lesser pricing discounts offered. They can also have terms and conditions that can cost you a lot more than if you had shopped around via an experienced finance broker. The total amount financed and the repayment amount is what you need to compare, not the quoted interest rate. Compare apples with apples!
Personal loan interest rates are generally higher than those offered on car loans and the term is also usually less.
Get locked into a personal loan and you may find yourself paying off more interest in less time. There are other vehicle financing options and better ways…
Using personal loans to consolidate other smaller debts is a popular choice for a lot of people – but that doesn’t mean it’s a smart choice.
Yes, it can mean a simpler way to manage your debt – with one neat monthly repayment instead of lots of different ones – but it can mean an inflated interest rate that may not be the best use of your hard-earned money and you may be extending the debts out for a further 5 -7 years.
Consolidating debt with a personal loan can add extra fees and other costs to your balance – and that doesn’t help you save. Make sure you crunch the numbers properly before deciding to consolidate your debts with a personal loan. Sometimes, simply being better at budgeting can make a big difference to your existing loan repayments – and that can save you more than consolidating your debts via a personal loan ever could.
Other options could include applying for a zero interest balance transfer on a new credit card for a set period – but just be extra careful of what happens when that zero interest period ends. If you haven’t budgeted to pay your debt in time, you’ll end up with even more debt – and a hugely inflated interest rate.
Going on a holiday is a wonderful thing – especially if you’ve been working hard and need a well-earned break. But…be careful! Paying for your holiday with a personal loan is not smart use of your money and will see you paying a lot more in interest repayments.
Holidays are fun but they aren’t essential. And that means that you should be sensible about how you pay for them – and whether you can afford them at all. Paying for a holiday with a loan means that you’re paying way more than your holiday was actually worth and all that rest and relaxation will be worthless if paying the money back gives you additional stress. Consider planning mini-getaways in your local area that don’t cost a fortune and take a long, hard look at your budget to save for that dream holiday down the track.
When an emergency or time-sensitive expense pops up (such as paying for a flight to attend a family funeral interstate or overseas), then a personal loan could be just what you need. And if your washing machine dies? Well, that’s a good reason to get a new one (because paying for laundromat fees is ridiculously expensive!) But for other expected expenses, such as planning a wedding, it’s smart to think more carefully before taking out a personal loan immediately. That wedding can always wait another year and with some stringent budgeting, you can reduce the amount of your original loan amount and pay for the rest with your own savings. Yes, it requires some patience but it will pay off in the long run, with less interest.
A personal loan can definitely help deal with some of the expenses associated with putting on a great wedding but by waiting and budgeting better, you might also find that some of the extravagant plans you made tone down to a more reasonable vision and your personal loan application is for an amount that is far more manageable.
Personal loans can be a brilliant way to help you achieve your goals but, sometimes, simply be delaying your application a few months, you can save more of your own money first – and that means less interest to repay over the life of your smaller loan amount.
To work out if a personal loan is right for you, ask yourself why you need it right now and use a loan calculator to work out your monthly repayments. If it’s in your budget and the loan will add value to your life in other ways, then it’s a good reason to talk to a finance broker and let them help you find the one that best suits your individual circumstances.
For more information about personal loans and other finance options to help you achieve your goals, talk to our loan specialists at Loans Actually on 03 8805 1850.