Taking out a loan from a licensed money lender is a practical necessity for many of life’s achievements – securing a home, paying for higher education, and getting married, to name a few. Moreover, they can also serve minor, yet nonetheless helpful, purposes like making ends meet during unforeseen shortages or covering the costs of sudden accidents.
One such type of loan that fits this description is a personal loan. Personal loans are unsecured loans that anyone can apply for and use for just about anything. However, just because they pose no restrictions or often come with favourable interest rates, it does not mean it is okay to recklessly apply for one to fund one’s self-indulgent desires. To make the most out of a loan, here are three main reasons to avoid using a personal loan for and why.
1. ‘Wants’ that you can save for
Whether it is a new game console or a long overdue vacation, most people will undoubtedly yearn for a million things that they want to have at any point in their lives. And because of the option of readily available personal loans, it can be tempting to fall into the mindset of ‘get now, pay later’ due to being overly confident in their financial security. However, this stability is never guaranteed, as is evident from the recent pandemic, which resulted in numerous lost jobs worldwide.
Thus, it is never a good idea to take on debts to satisfy your ‘wants’ sooner than later, even if you are extra careful and have a debt repayment plan in mind. Instead, practice patience and exercise self-discipline by continuing to save for what you want slowly. There are many ways to speed up this process without having to incur debt, such as starting a savings account with higher interest, getting a temporary part-time job, or simply selling items you no longer need. In this context, any other option is better than being burdened by a debt that you did not need to incur.
2. Investments with poor return on investment (ROI)
Whether an investment is good or bad, there will always be a risk involved in each one. Thus, investors will refrain from putting the money they cannot afford to lose into any investment, no matter how lucrative it may be. Therefore, if you wish to do the same and plan to use a personal loan, it is advised that you think more carefully about it. The reason being is that even if your investment does well and becomes stable, its growth may likely be lower than the personal loan’s interest rate － meaning there is a poor or negative ROI, which makes no financial sense and only drains your funds.
3. If there are more and better alternatives available
Since personal loans are mainly considered general-purpose loans, borrowers may want to use their loans to purchase a personal vehicle, renovate their home, fund their education, pay off a mortgage, or start up a business. Needless to say, personal loans are not suited for such reasons, even if it is possible to use them for such.
If you plan to use a loan for one specific purpose, chances are there is another type of loan that is better tailored for those needs and with a better, more competitive interest rate. Some examples include car loans, business loans, renovation loans, and debt consolidation loans, to name a few. As a rule of thumb, always look for other loan options or better financing alternatives available and refrain from making personal loans your first choice for all your loan needs.
When appropriately used, loans are an effective tool that helps improve one’s quality of life. However, they can also become a burden when borrowers are not careful when taking out a loan or misuse it for their personal desires. As such, it is always recommended to be prudent when dealing with loans and always think about getting the most out of them.
If you’re looking for the best and quickest personal loan around, Orange Credit has you covered. As one of Singapore approved debt consolidation companies, we offer various loan options to choose from – personal loans, consolidation loans, business loans, and more! With low-interest rates and flexible repayment terms, you can surely find the financial boost you need with us.