Is your reason for borrowing money a good one?
According to recent studies, the top reason why people apply for a personal loan is for debt relief; either to get out of debt or for debt restructuring through debt consolidation.
What is debt consolidation?
Debt consolidation means that you combine your debts, such as a study loan, car loans, credit card debt, or other small loans into one single personal debt consolidation loan which typically carries a fixed interest rate and has one much lower monthly repayment over a fixed term.
For some people, the consolidated payment ends up being less than what they were paying while servicing several different loans. Others benefit from the fact that they can stretch their repayments over a longer time and pay a lower monthly instalment. Debt consolidation is usually a good idea; just make sure that your debt doesn’t end up being very expensive because you are paying it off over a longer period. Debt consolidation is of course not the only reason why people take out personal loans.
Reasons why people apply for a small loan that may require emergency cash:
- Home improvement loans:
A personal loan is a great option if you don’t have money on your home loan, or if you don’t want to access your home loan as a credit vehicle when you are looking to renovate, refurbish, decorate, furnish, improve or extend your house. You can usually borrow money and pay off the small personal loan more quickly while adding value to your home at the same time.
- Relocation or moving house loans:
A major long-distance move can be expensive enough to warrant a personal loan. It makes particularly good sense if you move to take up a new job with a higher salary that will allow you to repay the loan quickly and easily.
- Wedding loans:
Getting married can be quite an expensive exercise, whether you are having to layout out cash for the wedding, planning for a honeymoon, or moving into your new home together as a married couple. Many couples are choosing a personal loan to help cover their wedding expenses. This gives them cash in hand with which to negotiate the best deals with venues, suppliers, and honeymoons.
- Family emergency loans:
Many survey respondents have said that if they suddenly find themselves in a family emergency situation; such as having to bury a loved one or having cover medical gaps and shortfalls, they would be unable to access funds quickly enough to provide for these emergencies.Funerals can be extremely costly and if the deceased person had not made the necessary provision. This is where a personal loan can provide a family with much-needed emergency relief cash.
- Medical gap cover and unforeseen medical expenses:
Most medical aids don’t always cover all hospital or medical expenses and there are times when one might have to fund a shortfall for a cosmetic or medical procedure yourself, which is not usually something that is provided for in a personal budget.Access to a personal loan can alleviate much frustration by helping you to deal with a last-minute or unexpected medical health cash predicament.
- Car loans:
Although most people usually choose a secured loan to buy assets, such as a car, it might not be an option for you. For example, when your credit history is not long enough to generate a credit score, you can use a personal loan to buy the wheels you need.Even if you are able to secure a car loan, you might have to come up with a card deposit, which is often where most people get stuck and where a small personal loan could be the solution to helping you secure your new vehicle.Others often find themselves in a situation where there is a shortfall with their car settlement when they are looking to either upgrade, downgrade, trade, or sell their car; and this is where a personal loan could be the ideal solution.
- Study and educational loans:
A student loan can be expensive and is often an exorbitant expense for any family. Whether further your education with a short course or needing some cash to fund your studies, a personal loan could assist in improving your skills to boost your career further.
- Small business or start-up loans:
Many aspiring entrepreneurs turn to a personal loan to assist them with a small business start-up idea that doesn’t require massive investment funding or capital.In this instance, most people continue to work in their full-time jobs as they need to be earning an income from a permanent position in order to qualify for the loan; and once their business idea takes off and the loan is settled, they then pursue further more aggressive business plans to grow their new small business.
- Travel loans:
They say that change is as good as a holiday, however, there truly is no substitute for a real dream vacation. Many people dream of going on their once-in-a-lifetime trip, or even just a short vacation to re-energize their soul, but don’t have quite enough money to travel.Provided that you are not already in any major debt, it could be a good idea to consider borrowing money from a reputable and responsible personal loan provider to fund your ideal holiday. It wouldn’t be smart however to borrow money every time you want to go away for the weekend, but your honeymoon; or your once-in-a-lifetime dream holiday; it’s may just be what the doctor ordered.
- Clear your credit card debt:
Taking out a personal loan, or applying for a debt consolidation loan can provide many advantages such as a lower interest rate, which can reduce the total monthly repayment amount for a finite term. This could be a good reason to borrow money, particularly if your expenses are exceeding your income and you find you frequently have more month left at the end of your money. Beware not to go back to using your credit card through while you are still paying off your personal loan; as this would put you into a worse situation than you were before.
As you can see, some reasons for borrowing money are certainly better than others; however, the bottom line is that you should never borrow money or take out a personal loan when it is not absolutely necessary or when you cannot afford it. If you want something rather than need it, the reason is probably not good enough. Always lend responsibly, and be sure to be vigilant in your debt management and personal budget to ensure long-term financial wellness.
Should you wish to discuss the various debt management and personal loan options available to you, who will guide you through the process of applying for a personal loan responsibly.