Personal loans are viewed as the first option during financial emergencies or can be nightmares to some borrowers who are having difficulty repaying their loans. In this article, you will learn when personal loans are a bad idea, when they are a good idea, and how to use personal loans to improve your financial situation.
So these are the cases where borrowing money is not a good idea.
Paying for Basic Needs with Personal Loans
Your monthly income is supposed to cover your basic needs. Even with a steady monthly income, this can be challenging for most Filipino families. If you plan to apply for a loan to pay for your basic needs, you might spend a lot more. So, are personal loans a bad thing? Yes, in this case. Simply because basic necessities are recurring expenses that should not be covered by a personal loan.
No Repayment Plan for Personal Loan
Unfortunately, there are times when borrowers simply take out a loan with no intention of repaying it. Or you just want to borrow without making a plan for repayment. Of course, if the situation gets worse, you can always find advice on how to take a loan if you are blacklisted. However, failing to plan your loan repayment is detrimental to your financial health. The chances of late payments are high. You might also end up taking a more expensive loan just to pay your current one. The result will be having multiple loans with no solutions in sight. In this case, do not take a personal loan. Instead, you can supplement your income with other sources of income. Get a second job, sell your belongings, or provide paid services such as house cleaning, gardening, pet grooming, and so on.
Loaning for Investments
Investing could be spending money to start a business or buy a home. This is not bad because the goal is to make money. However, investing your personal loan proceeds can backfire if you have not planned a risk-management strategy. Not all investments guarantee a return. Some investments, such as small businesses, are prone to failure. If this occurs, you will be left with a failed business and the loan, interest, and fees. Thus, borrowing money for investments can be beneficial only if the profits outweigh the cost of the loan.
Borrowing Money to Cover Unnecessary Expenses
Personal loans are bad if you use them to pay for unnecessary items such as vacations, parties, expensive gadgets, jewelry, branded apparel, and other things you cannot afford to pay for with your monthly income. Purchasing items to alleviate stress and anxiety is acceptable. However, these are planned expenses that must be saved for and usually paid for in cash. Things could be more stressful once you see how much loans and interest you have to pay.
Obtaining a Personal Loan Without Comparing Personal Loan Offers
Comparing personal loan offers can assist you in locating the best deals, such as those with the lowest interest rates or monthly repayments. Consider a few of these suggestions when comparing loans. At least three loans should be compared as this will give you more options in choosing the best deal. Examine the total cost. In addition to comparing interest rates, consider the loan term. Read the terms and conditions carefully. Make sure you are able to understand everything in the loan agreement and most of all, be able to conform with it.
When Is It a Good Idea to Get a Personal Loan?
Getting a personal loan must be useful such as in medical emergencies. If you have a plan on how to repay the full amount on time, then getting a quick cash loan could be good for you. The majority of personal loans default because borrowers fail to pay on time. Negligence can result in penalties, making your personal loan appear to be a bad choice. Borrow only what is required. Avoid having an excess amount, else you will end up using it for unnecessary items or activities.
Sean Martin D. Plantado, head of the customer service for Digido.ph, does not recommend buying a gadget on credit for which you will pay more than 20% of your monthly income each month.
Are personal loans harmful? No, they are not. However, if you do not plan ahead of time and commit to repaying them in full, this can lead to complicated financial situations. Remember, since most personal loans are unsecured, the lender will most likely charge you with higher interest. So before you decide on a personal loan, consider other less expensive ways to borrow or give it some thought if you really need this kind of loan. Get a loan if you think you are responsible enough.