If you’re in need of extra cash for a large purchase, you may consider a personal loan. Most personal loans are unsecured, meaning there isn’t collateral if you fail to pay back your loan in accordance with its terms. Because of this, personal loans often have higher interest rates than other types of financing, and should only be used when necessary. Here are three bad reasons to get a personal loan.
1. To pay for your wedding
You’ve met The One, someone got down on one knee, and now you’re in wedding planning mode. Great! But don’t allow this happy occasion turn into your first married fight: trying to figure out how to pay down the massive debt incurred for a single day. Save up for your wedding and don’t exceed what you can afford.
If your budget doesn’t allow for the wedding of your dreams, you either need to postpone the wedding to save up the rest or downsize. This could mean shortening the guest list, doing the decor yourself or switching from lobster to pork. An extravagant wedding is great, but it’s a tiny blip in your potentially long and happy marriage.
2. To cover an upcoming vacation
Vacations are a time for relaxation, exploration, escape and, most importantly, fun. But there’s nothing fun about coming home from vacation saddled with debt. Save up the cash to pay for your trip in full so your worldly travels don’t put you in the red.
3. To finance a car
Car loans with good terms can be a great option if you need a vehicle and can’t or don’t want to fork up the cash. However, personal loans tend to have higher interest rates than car-specific loans for those with good credit.
If you’re planning on financing a vehicle, you should first talk to your local credit union about its car loan rates. Then, when you go to the dealership and choose a car, you can compare that rate with the rate offered by the dealership and choose the more affordable option.
The rule about going into debt
Some people never go into debt. They pay for their homes and cars in cash, receive a full scholarship for college and equate the necessity of credit cards with that of Chia Pets.
For the rest of us, here’s a simple rule of thumb for taking on debt: Only go into debt when necessary or for appreciating assets. Student or car loans may be necessary, while a home or business should increase in value. When you take on these types of debt, be smart about them. Limit student loans by working during college to pay as much as you can. Get a reasonable car loan and mortgage. Figure out how much you can afford and use that number as your guidepost for a loan, not the figure the bank gives you.
The takeaway: If you’re in need of extra cash for your wedding, a vacation or a new car, you may be tempted to get a personal loan. Avoid this impulse to save yourself money and the stress of unnecessary debt. Car financing can be acquired cheaper, and your wedding or vacation should be paid for in cash.
Wedding couple image via Shutterstock