When is the Right Time to Apply for a Personal Loan?
Nowadays, it’s not embarrassing to admit that you need help financially. The cost of living is going up steadily, while salaries can remain stagnant. It’s common to see one’s salary unable to keep up with one’s financial obligations, especially when emergencies and other major situations arise. Borrowing money from family and friends is not easy, especially if they share the same predicament. This is when you should consider going to personal loan lenders.
Unlike housing or car loans, personal loans can be used for any reason. You pay what you borrowed in fixed monthly terms. The interest rates are usually lower compared to credit cards, which makes it a more practical option compared to cash advances.
How you will use the money is certainly up to you. But remember that a loan is a loan and therefore a financial obligation. This is why you should only avail of this loan if you really have a good reason to do so. Also, banks will make approval easier if you don’t intend to use the money for leisurely purposes (like a vacation) although in theory, you CAN use it for that purpose.
Getting a personal loan is a great idea if you need to:
- Consolidate or refinance existing debt
Your existing loan may have had the lowest interest during the time you applied for it, but then again you have no way of telling if the rates from other banks will go lower. Now that the market is rich with low-interest options, it only makes sense to consolidate your existing debt with it. This is perfectly acceptable – banks are used to loans being consolidated or transferred – and you shouldn’t worry about risking your credit history (as long as your payments are up to date, that is).
- You need to spend for home improvement
Home improvement is not only beneficial in terms of safety and convenience, it also increases the value of your property. Why not use your personal loan for this purpose? This is certainly cheaper than getting a home equity loan and you don’t have to put your house as collateral.
- Expand a small business
Expanding a business has its risks and using a personal loan for this purpose may yield unfavorable results in case your plans don’t pan out. But it’s better to use the funds for something that promises returns, as compared to using your money for purposes such as vacation.
When it doesn’t make sense to get a personal loan:
Lots of people borrow money for non-essential purchases, such as vacations and weddings. Although you can use the cash at your discretion, it’s the idea of paying interest for non-yielding purposes that should concern you.
Ideally, you should be saving up for vacations and weddings since these are not emergency situations, giving you more time to set aside money. This also applies to leisurely items such as electronic device or appliances, unless you plan to use them for business.
Just like other loan types, you should compare what the banks are offering first before you send out your application. Compute loan interest rates and consult your loan officer beforehand so you can make the smartest choice possible.