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There are various reasons why people take out a personal loan. You could be considering taking out a personal loan to consolidate your debt, purchase a car, do renovations to your home to name a few. But there are a few things that you shouldn’t use a personal loan for or you could end up in more financial trouble than before.
Recreational purposes
Personal loans are a great way to give yourself the needed financial boost. But you will have to reconsider the loan if you are planning to take it out for recreational purposes such as shopping or a holiday. Although there are some Australians who usually take a loan for a holiday, it is wise to keep it at a low amount instead of basing all your holiday expenses on a personal loan. Keep in mind that whatever amount you borrow you will have to pay back with interest.
Business purposes
There are business loans that are specifically designed towards funding a business. Business loans tend to come with flexible repayments and terms that will work perfectly with your cash flow. Furthermore, you will be able to borrow amounts ranging from $5,000-$300,000 that come with a reasonable interest rate.
You can save the money
A personal loan can be an easy to access financial option, but if you can save up for the same amount you are applying for then you would be better off saving, especially if it isn’t an urgent need. There are already 53% of Australians that put aside money to save up for a holiday. This will help you avoid the interest that comes with a personal loan and it will also help you make a once of payment once your money is al saved up.
Investments
Investing money into stock markets or venture businesses can also be a risk. The issue here is that you do not know whether you will make returns on your investment. Taking out a personal loan can come with high interest rates due to the risk that comes with investing in such speculative activities.
Home renovations that don’t add value
There are renovator delights and there are renovator nightmares. It all depends on how you plan out your finances and know what will add value to your home when it comes to renovations. It is vital to calculate the expenses that come with renovating and the time frame which is needed to complete the project or else you are planning to fail. Doing research on renovations that add value to your home will also save you from losing money on a botched renovation idea.
Making a personal loan work for your situation requires an evaluation of your current financial status to see whether or not you can afford it. Looking at the repayment terms of the loan and the interest rate that comes with it will help you see if you will be able to afford the loan throughout its term.
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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.
The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.
Approval for personal loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.
The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.
