What Should I use Personal loans for?
Personal loans are general purpose loans and therefore the lender will not specify what they need to be spent on. This means that you can choose anything to buy with them. However, this does not mean that you should use them for everything. It is worth thinking about what you are using them for.
Some items that have specific loans
There are some loans which are designed for buying specific items. These are things like student loans to pay for university fees and mortgages to pay for homes. These loans are set up specifically for buying these things. You can buy them using other types of loans but it is best to use the right sort of loan for them. This is because you may not be able to borrow enough money with other types of loan and you may not get such favourable terms with other types of loans either. For example, if you are buying a home you will usually need over £100,000 and this is not available with other types of loans. You will also get a much longer repayment period as you borrow so much. A student loan will be set up to pay out money each term so the payments are staggered making it easier for students to manage their money and the fees are paid directly to the university. They are also set up so that repayments do not have to be made until the student gets a job earning over a certain amount of money, which means that they should always be able to afford the repayments. It is therefore wise to make sure that there are not specific loans set up for the purpose of borrowing for what you want.
Items that are luxuries
Borrowing money for luxuries is not always wise. This is because borrowing always costs money and has some risk attached. To have a loan you will have to pay fees and interest if you want to get money now. This means that you will always repay more than you borrow and in some cases this can be a significant amount of money. This means that if you are buying things that you do not really need then it may seem silly to borrow the money and then pay out even more for the item than you would have done had your waited to save up.
Loans should really be used either for emergency payments or to buy things that will help you to better yourself. For example, buying a car so that you can get a job in a place you cannot use public transport to get to will mean that you will have an income. If that income is more than you could earn doing a job that does not require a car then it would seem to make sense to borrow the money. However, borrowing money to buy new home furnishings to replace ones that look good but are just old fashioned, could be considered to be less justified.
Amounts you cannot repay
The most important thing to consider when getting out a loan is whether you can afford to repay it. You will need to think hard about whether the repayments will be manageable both now and in the future. Make sure that you find out how much those repayments will be to start with. Then do not just guess whether or not you will be able to afford them but actually work it out. Look back over bank statements and see whether you would normally be able to afford these repayments. If you usually have money left over each month which will be enough to cover the loan repayments then you can be more confident that you will be able to repay it than if you would not normally have enough. It might be that you will be able to see places where you can change your spending though, so that you will be able to afford the repayments. You will need to consider the future as well though, if the loan goes on for a while. You will need to think about whether you think the repayments might go up, whether you think your income will change or the items that you buy each month. It can be hard to predict but try to give it some thought as it could be really important to think about whether you will always be able to afford the loan repayments.
So, once you are confident that you will be able to afford the present and future repayments, that the item you are buying is justified and that a personal loan is the right type of loan, then you will be a step further towards borrowing. However, deciding on the fact that you will be getting a personal loan, is just the first step. You will then be in the position where you will need to think about what you are looking for in a lender and this will enable you to choose the right loan that will offer you the best value for money. Remember to calculate the full cost of the loan so that you can compare them easily.