What can I use a personal loan for?
Here is when you should (and shouldn't) use a personal loan.
There is a range of credit options available should you need them, and personal loans are just one of many. So, in which situations should you consider a personal loan and when should you avoid one? Find out in this guide.
For what purpose will lenders let me take out a personal loan?
|Purpose||Can you fund this with a personal loan?||Are there other financing options?|
|Vehicle purchase||If the vehicle is eligible, opt for a car loan for lower rates. Unsecured personal loans are also an option.|
|Debt consolidation||You can opt for a debt consolidation personal loan or a balance transfer credit card.|
|Home renovations||As well as an unsecured personal loan, you could also consider a line of credit home loan or construction home loan.|
|Taking a holiday||You can opt for an unsecured personal loan for this purpose.|
|Business use||Some lenders such as Harmoney let you use personal loans for business purposes, but generally, you are required to take out a business loan.|
What other credit options can I consider?
While a personal loan is a viable option for the above scenarios, you have other financing choices you could consider. These include:
- Home equity loans. If you’re undertaking home renovations, using the equity from your home is an option. Work out the cost of this, as well as a personal loan, to see which is the better alternative.
- Business loans. If you require a loan for business purposes, you can compare lenders offering loans from $1,000 to $250,000.
- Credit cards. These can be a good source of ongoing credit and may come with high limits – between $500 and $100,000, that you can use when you don’t have the ready money.
- Balance transfer credit card. If you have debt across a few credit cards or even a personal loan, you could consider a balance transfer credit card. These let you pay 0% interest on the debt for an extended period.
Will my loan purpose affect my application?
Yes, it can. For example, if you are applying for debt consolidation you may already appear to be a higher risk than someone buying an asset, such as a car, or someone investing in their property by undertaking renovations. However, it depends how the lender assesses the risk of your application. Ultimately, your eligibility comes down to whether you meet the lender’s application criteria and if you can afford to repay the loan.
When should I not use a personal loan?
While many loan purposes are acceptable, some are not advisable. Here are some situations where you may want to reconsider your loan application:
- If you can easily save the money. Want to take a holiday or buy a new lounge, but it isn’t urgent? A personal loan may not be the best option. Work out how much the repayments would be and save that amount each month instead. If you can wait to do what you’re planning, saving is the best option.
- If it’s a bad investment. Are you thinking of taking out a loan to carry out home renovations or for some other investment? Make sure the investment adds value rather than takes it away. Otherwise you’ll be repaying the loan on an idea that lost money.
- If your income and employment aren’t stable. You should not take out a personal loan unless you are in a stable financial position. If there is any reason you think your income or employment situation may change for the worse, don’t apply for a loan.