We carefully consider whether to borrow money when we need it for an emergency. Is acquiring a personal loan worthwhile? is a question we ask a lot.
Currently, when we consider the epidemic and everything that has occurred, we presume that personal loans are the best solution to our financial problems. However, are they really?
In this post, we’ll provide you with some guidance to help you assess your options and determine whether applying for a personal loan is worthwhile.
Is Taking Out a Personal Loan Bad?
The short reply is no, not always. Because a personal loan can be applied for almost anything, there are good and valid reasons to obtain one. It can be helpful in many circumstances, but it’s especially helpful in emergencies.
But if you’re not careful, there are serious consequences.
Philippines Personal Loans: Advantages and Disadvantages
What Benefits Can a Personal Loan Offer?
- Lower interest rates than credit cards – Personal loans have monthly interest rates that range from 1.20% to 1.94%, which is lower than the 2% average interest rate on credit cards.
- Flexible – Unlike auto loans and mortgages, which can only be used to buy a car or a home, personal loans can be used to pay for a variety of needs, both anticipated and unforeseen.
- Greater loan amounts – Your borrowing capacity ranges from $10,000 to $2,000,000 depending on the lender.
- Possibility of selecting a payback duration – A longer period results in lower monthly payments, but a larger interest rate is applied.
- There is no requirement to give up your home or car as collateral for unsecured personal loans. It denotes a smaller risk for the borrower than with a secured loan. You won’t lose any of your possessions because a personal loan doesn’t demand collateral.
- Quick approvals – You can quickly receive your loan proceeds in as little as 24 hours if you submit complete requirements and meet the eligibility standards.
What Drawbacks Can a Personal Loan Have?
It’s crucial to be aware of the drawbacks of a personal loan before speaking with a loan officer. Here are a few examples:
- Higher interest rates – If your credit is bad or poor, this is true. You can be given a personal loan with a higher interest rate because lenders view this as a high risk. Additionally, unsecured loans have higher interest rates than secured loans, which include collateral as security.
- Personal loan fees – If you’re on a tight budget, making a late payment on your loan will result in you having to pay the associated fees and charges. In addition, banks levy pre-termination fees for early loan repayment.
- Risk of taking on more debt – Even if you take out a personal loan to pay off debt, the debt still exists. Additionally, if you continue skipping or missing payments, your debt may grow as a result of the outstanding balances.
Is It Worth It to Get a Personal Loan? Reasons Why You Should Borrow Money
Is obtaining a personal loan worthwhile? Here are a few scenarios in which taking out a personal loan makes sense.
Consolidating debt
You choose to place all of your debts in one account when you combine your obligations. You take out a loan to cover all of your outstanding debts with various lenders. In this manner, you may concentrate on paying off a single loan and only need to remember one due date. Additionally, you can relax knowing that none of your other payments are unpaid.
However, a debt consolidation loan may not be a good decision if:
- The interest rates are higher.
- Only a few unpaid bills can be paid off using the loan.
- Your financial position will worsen.
If the cost of a personal loan exceeds the total of all your present debts, it is not worthwhile. In essence, by choosing something more expensive, you are not improving your financial situation. Additionally, you won’t succeed in streamlining your debt payments if the personal loan is unable to pay off all of your outstanding bills.
Please Read: Modernization of Debt Collection
Take out a loan to settle your bills if:
- The interest rates on the new personal loan are modest.
- It settles all of your loans in one loan account.
- The recurring payment is within your means.
If personal loans for debt consolidation have reduced interest rates and few costs, they are an excellent alternative. First, determine whether you can afford the monthly installments. You might simply end up taking on another debt that you won’t be able to pay back if the repayment amount is significantly higher.
Renovation of Home
Applying for a loan to renovate your house is one of the most popular loan uses, whether you want to replace your kitchen sink or completely remodel your dining room.
However, obtaining a personal loan for the sole purpose of changing the color of your bathroom tiles or enlarging your veranda to make place for your plants is insufficient justification.
But is obtaining a personal loan worthwhile if you want to boost your family’s sense of security and comfort? Yes! It’s a smart idea to borrow money to renovate your house, especially if you wish to:
- Correct a hazard
- Improve the utility and value of your house.
- Prepare it for a sale or extra guests who desire to stay, if any
- Make things convenient and comfortable
- Avoid any undesirable household settings.
If you see an issue in your home that needs to be remedied right away, a personal loan is an alternative. You can borrow money to repair the leaks in your ceilings or enhance the ventilation in your rooms because these house repairs are typically expensive.
Personal loans are beneficial for house renovations. Particularly if your priorities go beyond purely achieving your home’s aesthetic goals to include safety, comfort, and convenience.
Auto Financing
Should you take out a loan to purchase a car? That is the purpose of auto loans. When compared to personal loans, they have cheaper interest rates. People frequently steer clear of auto loans, though, as their automobiles may be seized if they are unable to make their monthly amortization payments.
When you factor in the expenditures, a personal loan for a car purchase is not advised. However, there are situations when applicants are accepted for a personal loan but rejected for a car loan. Personal loans may be a possibility for you if you fall into one of these categories.
Just keep in mind that, compared to vehicle loans, which may be repaid in three to five years, most personal loans have substantially higher interest rates and shorter loan tenors.
Medical requirements and hospitalization
You or a loved one may become ill at some point and require hospitalization. Is it worthwhile to take out a personal loan to pay for medical expenses?
It is reasonable to use personal loans to pay for medical expenses because getting treated and recovering from an illness is the ultimate goal. However, you might also want to look into further possibilities, such as government-backed loans offered through SSS and Pag-IBIG.
A personal loan application is an excellent idea if you need money for hospitalization or other medical expenses, especially if your HMO coverage has run out or you didn’t have one to begin with. Just be sure to review every aspect of the personal loan before applying.
Additionally, contrast personal loans available in the Philippines while paying special attention to the terms and rates. In this manner, you can only obtain loans that you can repay.
Conclusion
Is it worthwhile to obtain a personal loan? Only the borrower you would be aware. However, being aware of the distinction between good and bad debt can also enable you to decide whether taking out a personal loan is worthwhile.
Compare personal loan interest rates in the Philippines to find the one that will work best for managing your money and getting you out of tight spots.
