3 Moves to Make Before Considering a Personal Loan (2024)

This post is from our regular contributor, Erin.

Have you ever considered getting a personal loan to go on vacation, fund part of your wedding, or to help with a home improvement project?

How about to refinance your debt, or to consolidate it?

These are all common uses for personal loans. Really, you can use any reason to take out a personal loan. That’s why they’re personal!

Online lenders have been popping up like crazy the past several years, and if you have great credit, personal loans can be an affordable option if you’re in need of extra cash.

However, it’s important to remember that personal loans are still a form of debt. Regardless of the great interest rates some lenders can provide, it’s always worthwhile to see what you can do before turning to a personal loan.

For that reason, I wanted to cover a few moves you canmake before taking a personal loan, and under what circ*mstances you might want to consider one.

1) Think About the Future and Make Plans

Most of the time, people are using personal loans for things they could have (and should have) easily planned for.

Weddings don’t just happen – they’re planned. Same with home improvement projects (such as upgrades or making your home more energy efficient), vacations, and other major purchases.

Any large purchase should be properly planned for. You shouldn’t be buying an engagement ring or a house on a whim!

If you think these expenses are sneaking up on you because you haven’t thought them out, then maybe it’s time to sit down and review what your financial goals are.

Think long and hard about what the future might hold. If you’ve been with someone for a couple of years, do you think marriage might be on the horizon? Getting the itch to travel and want to take a much-needed vacation? Worriedyour home might need a few repairs within the next few years?

Make a list of all the possibilities. Preparation is one of the many keys of financial success, and by preparing, you can start saving for these goals, rather than havingto turn to a personal loan to fund them.

Speaking of…

2) Turn Saving Into a Habit

Once you’ve made a list of your goals, it only makes sense to plan outhow you’ll save for them.

I’m going to go out on a limb and say most people who turn to personal loans don’t have much saved up. If they did, there wouldn’t be much of a need for them!

Maybe you didn’t think saving was important because you didn’t realize how many financial goals you had.Planning can go a long way in putting your goals in perspective.

Either way, now is the time to start figuring out your plan of attack when it comes to funding your goals.

If you’re new to saving, the best thing you can do is set up automatic transfers from your checking to your savings account.

Automating your savings means you don’t have to think about it – the habit is developed for you! Plus, the money will be earmarked for saving, lessening the likelihood you’ll go and spend it.

If you’re easily tempted to spend, keep your financial goals in mind at all times. This will help you turn saving into a habit.

Have reminders of your goals everywhere in the form of a sticky note or picture. Place them on your desk at work, on the refrigerator at home, orwrap themaround your cash, debit card, or credit card. Createan image and make it the wallpaper on your computer and phone.

You’ll find yourself wanting to save for your goals rather than spend the money elsewhere.You might need the extra motivation to keep moving in the right direction!

3) ConsiderDelayed Gratification

I get that in some cases, you might not want to wait. Saving can take a while, especially if you’re working with a low income, or if you have debt.

That makes personal loans look rather tempting, right? Most lenders like to emphasize how fast their funding process is.

Don’t be fooled, though. Taking a personal loan out means having debt. It means paying interest, which means you’ll pay more than the original loan amount that’s disbursed to you. On top of that, it can also mean origination fees, making the loan more expensive.

Is what you’re using the money for worth all of that? Is itthat urgent?

In some cases, it might be. But in most situations, you’re better off waiting.

For example, I’m not willing to go into debt to afford a wedding. One day isn’t worth it to me, so I’m taking my time and saving up for it.I’d also rather not start married life off with a bunch of debt to worry about.

I know – marriage is a huge deal, and some people don’t want to delay that special event. All I’m asking is that you think about it.

What about a vacation? Is there any way to save for a smaller vacation to satisfy the itch you’re feeling in the short-term, while saving for a bigger trip down the road? Do you want to come back from your vacation worried about how you’re going to pay the bills?

Weigh your options carefully and make sure taking out a personal loan and incurring debt is absolutely worth what you’re using the money for. Making financially responsible decisions is half the battle.

When You Should Consider a Personal Loan

If an emergency happens and your emergency fund isn’t large enough to cover it, you might be better off going with a personal loan over charging it. Many lenders are offering competitive interest rates – much less than the typical credit card APR.

However, if the amount is small enough that you can pay it off in full before your next billing cycle, then charge it as opposed to goingthrough the loan process.

If you have high interest rate debt that you’d like to refinance or consolidate, personal loans can also be a good option. Again, if you have good credit, you’ll often be able to save money by getting a lower interest rate.

Just remember to be responsible and make timely payments. Don’t take out a personal loan ifyou won’t be able to afford the monthly payments. Lenders willgive you the details of the loan before you make any commitments so you can review them before accepting.
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The need for most personal loans can be avoided with a little planning, saving, prioritizing, and waiting. Be realistic about your future needs and take appropriate preventative measures before the need arises!

Have you ever taken out a personal loan before? Why? What advice would you give to people applying for a personal loan?