Here are 4 Very Bad Reasons to Get a Personal Loan
Avoiding high-cost predatory loans is great, but even the most affordable loans can pose a danger to your finances if they’re being taken out for the wrong reason.
Normally, this is a blog that focuses on the dangers of predatory no credit check loans like payday loans, cash advances, and title loans. But for this post, we’d like to talk about something a little different. Instead of talking, per usual, about how these short-term bad credit loans pose a danger to your finances, we’d like to talk about the instances where any loan would pose a risk.
You see, even the best loans with the most generous terms can be a bad idea if they’re misused. No matter how low your interest rates are or how reasonable your monthly payments, debt is still debt. Some things are worth getting into debt over, while some things … well, they just aren’t.
What that in mind, here are four situations where taking out a personal loan is most definitely the wrong choice.
1. To pay for a vacation.
Who doesn’t need to get away once in a while? But that doesn’t mean you should be taking out a personal loan to do so. And don’t think that putting this long overdue trip on a credit card is going to work either. Racking up debt to finance your vacation is a bad idea all around.
Taking a vacation can be a great way to reward yourself for all the hard work you’ve done throughout the year, so why would you dig yourself into a financial hole in order to do it? That’s just going to mean even more stress when you get back home and the bill for your trip quite literally becomes due.
Instead, you should plan your vacation far in advance and set a little money aside from every paycheck in order to pay for it. And while putting your vacation on a credit card is a financial no-no, responsibly maximizing your credit card miles in order to make your trip more affordable is a … is there such a thing as a financial yes-yes? Then this is one of them.
And if you need a vacation in the short-term, why not try a thrifty staycation? Find fun and low-cost things to do in your area—and then go enjoy them! You could also try unplugging from social media, clearing out your Netflix queue, or even going camping in your own backyard!
2. To get new furniture.
New furniture can feel like a “must purchase” when in reality it’s often just a “want to purchase.” The difference between those two kinds of transactions can be a pretty helpful line when determining whether or not you should take out a personal loan in any situation. A surprise car repair, after all, is a lot more pressing than a new La-Z-Boy.
It doesn’t help either that good quality furniture is expensive and it really starts to lose its value the second it gets sold. So taking out a personal installment loan to pay for a new couch or bed or dining room set will mean the double whammy of higher principals and depreciating assets. In general, “good” debt is debt that increases your total net worth, while “bad” debt decreases it. And buying furniture with a personal loan would count as “bad” debt.
Here’s the good news: When you’re in a bind, many furniture stores offer financing programs where you can pay the purchase off in monthly installments with a fairly reasonable interest rate. Here’s the less good news: Some of those rates are, um, not so reasonable, and many “0 percent APR” offers will go “poof!” after a single late payment. Before you agree to finance, make sure you read the agreement very carefully.
If you’re looking for other options—besides simply saving up for the purchase—you could consider visiting local consignment shops for cheaper, gently used items or scouring your local college curbs during end-of-year move out times? Even if it’s for a temporary replacement while you save up for your forever couch, the savings will be worth it!
3. To purchase electronics.
A lot of what we said about furniture in the above section applies to electronics. They’re far more likely to be a “want” than a “need,” there are usually financing options available when you purchase, and you should definitely not be taking out a personal loan to buy them.
Still, while you’d be surprised how many “essential” piece of electronic equipment are things you could definitely do without, there are always going to be exceptions. For many folks, being without a phone or even a laptop would dramatically impact their lives, both personally and professionally.
If you’re in a situation like this, don’t panic. You could consider renting a laptop or even doing a rent-to-own agreement. You should also scour the ‘net for the best deals you can and seriously explore getting a refurbished product. That could save you bundles in the long-run while still landing you a top-grade device.
4. To pay for your wedding.
We’ve had a lot of fun here, today, folks. But now here’s the part of the blog where we grab you (gently) by the lapels, (gently) pull you in close, and (not at all gently) yell very loudly in your face: do not under any circumstances take out a personal loan to pay for your wedding!!!
Ahem. Sorry about that. If we got any spittle on you, we sincerely apologize for that as well. It’s just that taking out thousands and thousands of dollars of debt to pay for a single event could very well be the worst possible financial decision possible.
Not only will you be left with an expensive pile of debt and interest, but you won’t have anything to show for it. When people borrow hundreds of thousands of dollars to buy a house … they still end up with a house. People who use a personal loan to pay for their wedding end up with nothing but the happy memories.
And, hey, we have nothing against happy memories! But we do tend to object when those memories come at the expense of future happiness. There might not be a worse way to begin a brand new marriage than by saddling it with thousands of dollars in consumer debt.
Everybody wants to have the best wedding ever. Just remember that “best” and “most expensive” are not the same thing. Find ways to save money on wedding costs, and be very honest with yourself, your fiance, and your respective families as to what you can afford.
Your special day might end up being a little less special than you had hoped for, but all those un-special days that come afterward will be much better for it. And if you want to learn about more ways that you can save money, check out these related posts from OppLoans:
- 10 Good Money Habits to Make Your Friends Jealous
- 7 Tips for Eating Out on the Cheap
- 4 Simple Ways to Save Money on Your Grocery Bill—While Still Eating Healthy!
- 50 Places That Will Give You Free Stuff on Your Birthday