When to consider taking out a personal loan
It’s never a good idea to take out a personal loan impulsively. Here’s what you should consider before applying for one.
While many of us try to save for moments when a car breaks down or a large appliance needs to be replaced, sometimes there just isn’t enough money available when you need it the most. We might be tempted to take out a personal loan during this time, but one must always do so wisely. Before you apply for a personal loan, ensure you have considered the following three points.
1. You have to make the purchase
Ask yourself whether your purchase is essential. If your normal day-to-day life can carry on without it then it’s not an essential expense; however, if you can’t live without it, then that makes it an essential purchase. If your TV is damaged, for instance, your life could carry on without it; but if your vehicle breaks down, that would make it difficult for you to get to work and, in such a case, you might need a loan to cover your vehicle’s repairs.
Before applying for a loan, always ask yourself whether you really need it. There is a difference between buying a car that you really need and upgrading to a new car because it’s the latest model in the market.
2. You plan to use the money to upskill yourself
If you intend to use the money to upskill yourself, that’s one of the the best investments you can make. Any money spent on upgrading and furthering your education and skills is money well spent. When you are sure that the qualification you are interested in will open up greater employment opportunities for you, it can make sense to finance your studies with a personal loan.
3. Your credit score is in good standing
Financing institutions say that if your credit score is below average (below 500), it’s not a good idea to make another loan application, and you shouldn’t be happy with just an ‘okay’ score either. You should aim for a good credit score of 720 or higher, which is likely to qualify you for a lower interest rate.
Apart from these three points, there are a few more things that could justify a loan, such as when you can easily afford the repayments. If you’re considering taking out a personal loan the most important thing is to ensure you’re doing it for the right reasons.
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