A personal loan is a great financial tool when used in the appropriate manner. For example, you can use this type of loan to consolidate debt, take a trip, pay for a child’s wedding, or renovate your kitchen. And that’s just the start.
However, just because you qualify for a personal loan doesn’t mean that you should obtain one. This is a big financial decision as it’ll add another payment to your monthly budget. And depending on the term you choose, it could be part of your budget for several years (typically 12 to 84 months).
So, this leads to an important question: what does it take to responsibly use a personal loan?
While the answer varies from one person to the next, here are some things you can do to help your situation:
- Compare personal loan lenders: Before you can responsibly use a personal loan, you must take the time to compare three to five lenders (or more). This gives you a better feel for what’s available and which lender has your best interests in mind.
- Know what you want in regards to terms and conditions: Personal loan terms and conditions vary from one lender to the next. That’s why you need to compare lenders. The most important details are the term of the loan, interest rate, and fees. Compare these details and you’ll soon realize which lender is best for you.
- Don’t borrow more than you can afford to pay back: This is a trap that many people fall into. They’re interested in securing a personal loan and soon find that they can borrow more than they believed. Take for example a consumer who is interested in a $40,000 loan to renovate their kitchen. Once they learn that they’re qualified for $50,000, they think about all the things they can do with an extra $10k. The problem is that they don’t consider the impact on their monthly payment and long-term budget.
- Spend your money appropriately: If you borrowed money to pay for your child’s education, for instance, don’t use it to purchase a big screen television and pool table. Yes, it may be tempting, but you’re putting yourself behind the eight ball if you make this mistake.
With these tips guiding you, it’s easier to responsibly use a personal loan. And when you do that, you’ll feel good about the entire process.
Do you have any experience applying for a personal loan? Were you satisfied with the results? How did you use the money? Did you run into any trouble along the way?
