When is a personal loan a bad idea? I personally know several people who would simply say, “Always,” and the subject would thereafter be very firmly and forever closed. There are those who are so opposed to credit and the concept of debt that they would rather save up the money for any large purchase. For most of us, however, the principal is not so cut and dried as that and there will be times when a personal loan is a good idea and equally there will be times when it is not.
Without question, the most important factor in determining whether a personal loan is a bad idea is in determining whether or not we can afford to make the repayments. There will be occasions when we are approved for a personal loan through the lender’s application system when we ourselves have niggling doubts in this respect. It is important that we consider not only our ability to repay at the time of making the loan application but any factors which we know will have a negative bearing on same which are likely to arise at a future time, during the term of the loan. If we have any significant doubts at all in this respect, a personal loan is a bad idea.
We should also be considering why we wish to take the personal loan when determining whether it is a bad idea. If the loan is for something such as consolidation of credit card debt and we are going to save a substantial amount of money over the medium to long term, then a personal loan is obviously a very good idea. If, however, we are considering taking the loan in times of even moderate financial hardship for something which we don’t really need, a personal loan is a bad idea. These circumstances could include anything from upgrading a car which does not require it, to taking an overly expensive trip when we can go local for a fraction of the cost, to renovating or extending our home simply because we wish to.
A personal loan is a bad idea for students who can possibly avoid the need for one. There are of course a great many financial strains placed on students and equally a great many lenders willing to grant them a personal loan but starting off their working lives with such a millstone around their neck can be a huge burden to them, especially in such globally difficult financial times.
A personal loan is therefore a bad idea when we suspect we cannot afford it or that we do not need it. We should in such circumstances examine our priorities and explore our alternatives, prior to considering taking out a personal loan.