When is it a good idea to apply for a personal loan?

Personal loans are becoming increasingly attractive as the requirements for getting them drop. Unlike other types of debt, personal loans do not come with any restrictions in terms of how you can use the money. They also often have lower interest rates than other types of loans, making them the go-to choice for individuals who a moderate amount of money as fast as possible.

This having been said, the amount of freedom that banks and other lenders offer through personal loans can also work against you, in the sense that they may become too attractive. Although these loans are easy to get and do not require that you put up any collateral, they are still serious financial commitments. As a result, applying for one if you have other options, or if you do not need the money for a serious matter can quickly damage your financial life and affect your credit rating.

Only apply for a loan when you need it

There are certain circumstances under which applying for a personal loan is not only preferable but may even be cheaper than if you were to use other banking services. These recommendations may seem restrictive, however, they are meant to help you maintain a good credit rating. They will also allow you to use the money from the loan to its full potential. Here are the situations when getting a personal loan is a good idea:

  • When consolidating credit cards

Although credit cards are easy to use and also tempting, they can be a financial nightmare if you max them out. The situation can get considerably worse if you have multiple credit cards that you use on a daily or weekly basis.

If your credit card debt becomes too expensive, you can get a personal loan and use the money in order to consolidate them. In other words, you will use the money to top off your credit cards, provided that the interest attached to the personal loan is lower than the annual percentage rates on your credit cards.

  • When refinancing student loans

Student loans can be as problematic as they are useful, especially if you end up having to pay a variable interest rate. Although these loans often span over the course of 10 or more years, and the monthly payments are bearable, they can be expensive in the long run. If you are able to negotiate with the bank and get a personal loan that has a monthly interest rate that is lower than that of your student loan, it will be a good refinancing option.­ Overall, you will have to return the same amount of money, but with a lower interest rate, the debt will be put less pressure on your personal finances.

  • If to lower your credit utilisation ratio or pay for a large purchase

Paying for large purchases using a credit card can wreak havoc when it comes to your credit score rating. If you either are close to maxing out your credit cards due to one or more large purchases or want to buy an expensive product, consider using the money from a personal loan instead of a credit card. Getting the money may take longer as the bank will need time to review your request, but the debt will be more affordable in the long run.

  • Pay for an emergency expense

There are no restrictions when it comes to what you can do with the money from a personal loan, however, this does not mean that it is not a serious financial commitment. Even when it comes to this type of loan, banks will not approve your application if you have a low credit score. As a result, try to only take out a personal loan when you absolutely need it. For example, if you need to pay for a medical procedure, treatment, or for repairs done to your home.


Generally speaking, getting a personal loan is a good idea only if you truly need the money. The fact that the banks give them out relatively easily and that the money does not have any spending restrictions attached to it should not encourage you to get personal loans to pay for luxury items or nonessential products.

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