Are you confused in applying for a personal loan? Not too sure if your intentions are the right reasons for one?
Some personal loans can start from a low flat annual interest rate of 3.5%, require no processing fees, allow up to eight times your monthly income, and permit you to stretch your payment duration to up to seven years!
However, just because you’re eligible for a personal loan, it doesn’t mean it’s wise to apply when you just need some extra cash.
If you’re unsure, don’t fret — this article is here to help you make informed decisions on whether to take up a loan. It’s important to consider your financial circumstances thoroughly.
At the end of the day, a personal loan can be used for any number of reasons, but some reasons are actually not as necessary as others.
Without further ado, here are some of the best and worst reasons for personal loan.
Best Reasons for Personal Loan
Consolidating or Paying Off Debt
Credit cards are convenient and awesome: you can keep track of your finances, build your credit history, accumulate flyer miles or get cashback, and travel with a peace of mind.
The thing is: once you miss a payment, higher interest rates and late payment charges kick in, and also affect your credit standing. Especially with compounding interest on your debt, things can start to spiral out of control very easily, due to the fact that the average annual percentage interest rate of many credit cards is usually 25% or higher.
If you currently have considerable debt on multiple credit cards and are looking for a way to pay them off — a personal loan is one of the best ways to consolidate your credit card debt.
It allows you to replace multiple high-interest credit card debts into a single loan monthly payment with a lower interest rate.
With a personal loan based on a debt consolidation plan, the rate is as low as 3.8% to 6% (at the time of writing). As a result, you won’t have to struggle month after month to pay off your credit card debts, and your financial (and mental) health will improve.
Educational or Career Growth
In some fields, higher educational qualifications generally command higher pay. So upgrading yourself will help in the long run – not just with financial benefits, but also by expanding your network because your fellow students might come from various backgrounds and industries. This is true, especially if you pursue a Masters degree in Business or Management.
There are other high-cost professional and leadership developments as well. For example, the ones that are offered by Nanyang Technological University or Singapore Management University’s certification courses.
The Singapore government has been encouraging individuals, and companies as well, to continually upgrade and improve ourselves through lifelong learning – be it for personal or professional development.
However, the relatively modest amount of $500 would likely be insufficient to cover the fee for the SkillsFuture courses you’re interested in.
If you’re looking to upgrade your qualifications, educational loans can help with their lower average interest rate (around 4% or 5%) – provided you meet their eligibility requirements. If you’re not able to obtain an educational loan, the low interest rate from personal loans would be a good alternative.
You can also use a personal loan for home improvements.
Your home situation might have changed: perhaps requiring a new room for a new member of the family. Or there’s been an increased frequency (and costs) for the need to do maintenance on leaky pipes or broken fixtures.
Even if you’re not intending to sell your place just yet, a home renovation would help you be more energy efficient, save on those maintenance costs, and bring you a fresh look to your space.
Most importantly, renovating your home can lead to an increase in the value of your home in the market, allowing you to sell for a higher profit margin – definitely a welcomed thought for all homeowners.
Worst Reasons for Personal Loan
Now that you know the best reasons, let’s take a look at the worst reasons to take out a personal loan.
Pay Expenses for Weddings and Honeymoons
“It’s ok – a wedding is a once-in-a-lifetime event anyway. Just go big!” – irresponsible wedding vendors.
Happy and significant milestones in your life such as weddings can lead folks to throw caution to the wind when it comes to making financial decisions.
You might like to have the biggest and most lavish wedding celebration together with your family, friends, and 300 other acquaintances, and enjoy yourselves on a month-long honeymoon across two different continents – if you have loads of cash, what a fantastic experience it would be for you and your partner!
But if you actually can’t afford it, beginning a lifetime together on a huge pile of debt is certainly not a good start and can cause substantial strain on your relationship.
Even though a personal loan can be used to make large purchases, it really shouldn’t be used to pay expenses such as weddings or honeymoons. Luxurious options are wants – not necessities.
Such expenses don’t contribute to improving your future financial situation, so when you borrow to pay for them, you’re essentially committing yourself to pay money you haven’t even earned just to pay off the interest.
Avoid applying for personal loans for these.
Maintaining an Expensive Lifestyle
If you’re eyeing a new $9,000 handbag, or a 80-inch $8,000 smart TV screen, planning a $12,000 month-long vacation to Norway, or getting a $200,000 luxury car, but can’t actually afford it now – please don’t! That would be a dire mistake!
Applying for a personal loan just to maintain an expensive lifestyle will only drag you deeper in debt. Even if you clear off your credit card debt, just to use it again to buy unnecessary expensive items would be not advisable.
If you can’t maintain your lifestyle according to what you currently earn, and simply plan to borrow money, major financial issues are inevitable in your future. Many folks before you have gone through that unnecessarily painful journey.
Live within your means.
To Fulfil Investment Needs
Investments, when thoroughly researched and bought at the right time, are sound long-term ways to grow your financial wealth. But to personal loans to invest? – Not a great idea at all!.
With how the stock market has been since the beginning of the global Covid situation, the level of risk and uncertainty is much higher. Just in April alone, about 3800 companies closed down in Singapore. Overseas, iconic, big name, and century-old giants of fashion and entertainment have folded.
Even if the investments have been somewhat stable and are doing okay, the rate of growth might still be lower than the interest rate of the personal loan. In those cases, that would simply not make financial sense because effectively, you’re getting a negative return on your investments.
Are you financially fit? Only invest after you’ve set aside sufficient savings, emergency funds, insurance, and other financial commitments.
Want To Improve Your Financial Situation? Take Out A Personal Loan
We hope this article has given you advice that can help you better decide on whether to apply for a personal loan.
As you can see, personal loans can be useful when applied in the appropriate situations, and you will be able to benefit financially in the long run.
Conversely, seeking a loan for the wrong reasons can negatively affect you for a long period of time.
If you’re looking for a quick and flexible personal loan, Credit Hub Capital offers affordable personal loans with low-interest rates.
Get in touch with us today to know how we can help you achieve your financial goals sooner than expected.