Is Getting a Personal Loan Worth It? Here’s What to Consider
Published: September 24, 2021 | Updated: October 5, 2021 | Posted by: Moneymax | Personal Loan
When in need of funds for emergencies, we think twice about whether we should borrow money or not. We often ask: Is getting a personal loan worth it?
Right now, when we think of the pandemic and everything that’s been happening, we immediately assume that personal loans are the best answer to our financial difficulties. But are they, really?
In this article, we’ll give you some personal loans advice to help you weigh your options and decide if getting a personal loan is worth it or not.
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Is It Bad to Get a Personal Loan?
The quick answer: not always. There are good and valid reasons to get a personal loan because it can be used for almost anything. It can be beneficial in a lot of situations, especially for emergencies. But there are major repercussions if you’re not careful.
Advantages of a Personal Loan
But personal loans can also come in handy, especially when your funds are running low. Here are some reasons to consider getting one:
- Flexible – Unlike car loans and home loans that can only be used to purchase a car or a house, personal loans can be used to fund different expenses, whether planned or unplanned.
- Higher loan amounts – Depending on the lender, you can borrow anywhere between PHP 10,000 and PHP 2 million.
- No collateral – Unsecured personal loans don’t require you to surrender your car or your house just to borrow money.
- Quick approvals – As long as you submit complete requirements and meet the eligibility criteria, you can get your loan proceeds in as fast as 24 hours.
Disadvantages of a Personal Loan
Before you go talking to a loan officer, it’s important to know the cons of a personal loan. Here are some of them:
- Higher interest rates – Especially if you have bad or poor credit. Because lenders see this as a high risk, you may get higher interest rates for your personal loan.
- Fees and charges – When you make a late payment on your loan, prepare to pay the corresponding fees and charges, which can be a big deal if you’re on a tight budget.
- Additional debt – Even if it’s a personal loan to pay off a debt, it’s still a debt.
Is Getting a Personal Loan Worth It?
Not sure if you want to get a personal loan or not? Here are a few situations where a personal loan can be a smart move.
When you consolidate your debts, you decide to have all your debts in just one account. You borrow money to pay all outstanding balances you have from different lenders. This way, you can focus on paying off one loan and just keep track of one due date. You can also have peace of mind that you haven’t forgotten to pay any other debts.
But a personal loan for debt consolidation can be a bad idea if:
- It has higher interest rates
- The loan can only pay a few outstanding debts
- It will worsen your financial situation
A personal loan is not worth it if it costs more than all your current debts combined. In essence, you’re not making things easier financially because you’re just opting for something more expensive. Also, if the personal loan can’t pay off all your existing debts, then you won’t achieve your goal to streamline your debt payments.
Borrow money to pay off your debts if:
- The new personal loan has low-interest rates
- It pays off all your loans in a single loan account
- You can afford the monthly repayment
Personal loans for debt consolidation are a great option if they have lower rates and minimal fees. Check if you can afford the monthly payments first. If the repayment amount is much higher, you might just end up getting into another debt that you won’t be able to pay.
Whether you want to redo your kitchen sink or give your dining area a complete makeover, applying for a loan for a home renovation is one of the most common loan purposes.
However, getting a personal loan when you just want to change the color of your bathroom tiles or expand your veranda to accommodate your plants is not reason enough.
But is getting a personal loan worth it if you want to give your family an increased sense of comfort and security? Yes! A personal loan for a home renovation is a good idea, especially if you want to achieve the following:
- Fix a safety issue
- Upgrade the function/value of your home
- Prepare it for sale or for additional family members who wish to stay
- Provide comfort and convenience
- Prevent any bad home scenarios from happening
A personal loan is an option if you see a problem in your house that needs to be fixed immediately. Since these home fixes are usually expensive, you may borrow money to fix the leaks on your ceilings or improve the ventilation in your rooms.
Personal loans for a home renovation are worth it. Especially if your intentions are safety, comfort, and convenience, and not just achieving your home aesthetic goals.
Should you borrow money to pay for a car? That’s what car loans are for. They have lower interest rates compared to personal loans. However, people often avoid car loans because their vehicles can be repossessed once they can’t pay their monthly amortization.
A personal loan for a car purchase is not advisable if you consider the costs. But sometimes, borrowers get approved for a personal loan but get declined for a car loan. If you’re one of these people, then personal loans can be an option.
Just remember that most personal loans come with much higher interest rates and shorter loan tenors compared to car loans, which can be paid in three to five years.
Hospitalization and Medical Needs
Sooner or later, you or a loved one can fall sick and get hospitalized. Is getting a personal loan to pay for hospital bills worth it?
Paying for medical bills through personal loans is indeed reasonable, because your goal is to get treated and get better. However, you may also want to check other options like government-funded loans such as SSS and Pag-IBIG.
Hospitalization or medical need is a good reason to apply for a personal loan, especially if your HMO coverage is no longer sufficient, or if you don’t have HMO to begin with. Just make sure to check all the personal loan features before applying.
Also, compare personal loan offers and see their rates and terms. This way, you only get a loan that you can pay back.
Should I Get a Personal Loan?
Is a personal loan a smart move? Well, think about your intention first. If you’re applying for a personal loan for health and medical purposes, or if the money you’ll borrow will increase your value or wealth over time and improve your lifestyle and financial habits, then you should get a personal loan.
But if it’s only to purchase unnecessary items on sale, then a personal loan is not the answer.
Is getting a personal loan worth it? Only you, the borrower, would know. But knowing the difference between good and bad debt will also help you find out if getting a personal loan is worth it.
Make sure to compare personal loan interest rates in the Philippines that will best help you manage your finances and get you out of bad financial situations.
Source:  Good Debt vs. Bad Debt (Debt.Org)
With a goal to help Filipinos lead healthier financial lives, Moneymax regularly publishes tips and tricks on personal finance and lifestyle, among many other topics. For more finance-related news and articles, follow Moneymax on Linkedin.