Personal loans are not cheap, simply because they extend unsecured credit to be paid back along with interest in equal instalments. Yet many people apply for loans mainly because they provide quick financial assistance for their urgent needs.
Having said that, unlike other specific loans like a home loan or a car loan, a personal loan can be used for any requirement. But some reasons for taking a personal loan make more financial sense than others.
Here are 5 scenarios when taking a personal loan makes sense.
1. When you want to renovate your home
Taking a personal loan for renovating your house or making it livable is financially viable because:
● You’re investing in your house which is an appreciating asset
● Your home loan might not cover for additional expenses like woodwork costs or bathroom fittings or cost to refurbish a room
● You can retain at least some amount in your savings fund
2. When you want to develop your career
It’s a good idea if you take a personal loan to upgrade any professional skills by enrolling in a course or a higher degree if you cannot afford the fees.
In this way, you’re actually investing in yourself, which will ensure you climb up your career ladder quickly and get a job that will pay you much higher.
Having said that, if you’re only planning to upgrade certain professional skills, don’t forget to check out online portals like udemy.com and LinkedIn Learning that offer a plethora of free or inexpensive courses. You definitely won’t need a loan for them!
3. When you want to pay back credit card dues
A personal loan comes in handy to get rid of expensive credit card dues that multiply every month. Many people in our country apply for a personal loan to clear off their credit card dues as the interest rate of a personal loan is lesser than credit card late payment charges.
4. When you pay for your wedding
Weddings can be an expensive affair, especially if you want to splurge on it. As a result, many people are increasingly inclining towards taking a personal loan to pay for their wedding, reception party, and even honeymoon, when their savings are not in place.
This way they ensure that they do not compromise on their special day (or any other expense associated with it) even if their savings are not sufficient, and also minimise their dependence on parents to fund their weddings.
But here’s an advice: It’s okay to fund your wedding through a personal loan if you don’t have proper savings, but remember you still need to pay back the loan with an interest. So the key is not to splurge on your wedding, and trying to budget each and every aspect surrounding it, like your wedding dress, pre-wedding shoots, gifts, number of guests invited, reception venue, so on and so forth.
5. When you move into a new house
Moving to a new house in the same or a different city or country with your stuff has become quite expensive, and many people take a personal loan to fund their shifting expenses so that they keep some money in their account after paying for the new accommodation.
If a new job opportunity demands a change in your location, do reach out to your new employers to find out if they can pay (at least a portion) for your moving expenses. Goes without saying, transporting big furniture can be really costly for long distances, so be mindful of that.
Some other crucial pointers
How much personal loan you will get and at what rate largely depends on your credit score. Having said that, if you pay your personal loan in full and on time, your credit score will definitely see a boost. That, in turn, might help you get a major loan like a home loan at a cheaper rate of interest in the future.
Here are 5 cardinal rules to keep in mind before you apply for a personal loan:
● Take a personal loan only if you have to
● Never borrow extra money just because you’re eligible for a greater loan amount (stick to your requirement)
● Get complete clarity on how much your instalments will be (considering the effective interest rate and not the simple interest rate) and apply for the loan only if you can pay off the monthly instalments
● Compare all the personal loan options and select the best option for your requirement
● Never take a personal loan for someone else
Written by BBazaar Malaysia