When is it a Good Idea to Apply for a Personal Loan?

If you are reading this, you are probably considering taking out a personal loan. The good news is that you are already carefully weighing up your options and finding out more about it, which shows that you are not rushing into things. 

The problem with many people applying for loans is that they don’t take this careful step and rush into applying for a loan, have it approved, and then find they cannot meet repayments, their credit score is hit, and they are lumbered with a debt that they didn’t really want or need. A personal loan is a real responsibility and not a quick cash option.

Personal loan provider Wonga recommends various criteria you should read before applying for a loan product. These are really handy questions to ask yourself when applying for any financial item:

  • Are you using personal loans as a solution to long term financial difficulties? If yes, a personal loan is not for you
  • Are you using personal loans to manage existing debt? If yes, a personal loan is not for you.
  • Can you repay the debt in full each month on the agreed days? Late repayment of any loan will incur an extra cost to you and may negatively affect your credit rating. You should only take out a personal loan if you are confident that you can repay the full amount on time.

There may be various times when a personal loan is a good option for you. For instance, you might be starting a new job and need a car, but cannot afford one. A personal loan would enable you to get to work and would be a reasonable reason to apply for the loan. Similarly, you might need help with educational fees or maybe you want to do some home improvements that will lead to the higher value of your home. Any of these reasons would be good situations for applying for a personal loan. 

When looking for a loan, it is important to shop around and see what is on the market. Many lenders offer competitive rates but ensure you read the small print. Money.co.uk advise:

 “When you compare loans, it’s vital that you look beyond the top 10 loans available and compare loan rates and likely cost for the amount you need to borrow from all the loan providers out there.” 

They also say you should think carefully about the loan term; a shorter loan term is a good idea for repaying the debt more quickly and avoiding excess interest. However, you might not be able to afford those repayments, and you might consider spreading the cost a bit further. 

Each situation is different, and as such, you should take a responsible view of your finances and apply for the best one. What works for you, might not work for your friend, so when advising other people, bear this in mind. 

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