3 Things I Wouldn't Take Out a Personal Loan For
The great thing about personal loans is that they make it possible to borrow money for just about anything. Need to fix your car? A personal loan could provide you with the money you need to pay for repairs. Want to renovate or start a small business? You can do those things, too.
It's the unrestrictive nature of personal loans that makes them such a popular borrowing choice. As of the first quarter of 2023, U.S. personal loan balances amounted to $225 billion, according to TransUnion. So clearly, they're a pretty popular way to borrow.
But I believe that personal loans need to be used judiciously. After all, you're still taking on debt and committing to ongoing payments. I would not use a personal loan for these three purposes.
1. A vacation
I like to get away just as much as the next person. But I firmly feel that a vacation is something I should be saving up to pay for. And I don't like the idea of having to finance one, because that means paying more in the form of interest.
Thankfully, I've been putting money away in my savings account since the start of the year, so I'm well-positioned to cover the family vacation I'm hoping to take this summer. But if that weren't the case, I'd either put my trip off or otherwise do something really low-budget, like go camping for a week.
2. Furniture
It's one thing to take out a personal loan to pay for furniture if you've moved into a new home and don't have any. But my house is loaded with furniture. Granted, most of it has seen better days -- we can thank my kids and dog for that.
But because I don't need new furniture, I can't justify taking out a personal loan to upgrade the items I already have. Like a vacation, new furniture is something I feel I should save up for since it's not a need, but rather, a want.
3. A car
Because we live in the suburbs, my family needs to be a two-vehicle household. One of our cars, however, is really old and is basically on its way out, so we've been shopping around for a new one, even though car prices are still astronomical.
Now clearly, a car falls into a very different category than a vacation, or even furniture in the case when you already have plenty of it. A car is an absolute need when you live in an area with no buses to get around town, like I do. But I still wouldn't take out a personal loan to finance a car purchase. Instead, I'd look to apply for an auto loan. Doing so would likely mean snagging a lower interest rate on the sum I'd need to borrow.
Many people like the flexibility personal loans give them. But if you're thinking of signing one, be careful. These days, borrowing rates are up across the board. And even if you have great credit, you might get stuck with a higher interest rate on your loan. So if you're going to pay all that interest, it should really be for the right reason.
