Personal loans are so accessible these days. You can even request it online. And most don’t need collateral and just base your approval on your creditworthiness.
Unsecured (unsecured) loans always come with high interest rates. And that makes it a double-edged sword.
It can help you by providing you with financial leverage, but it can also throw you deep into a financial mess. And your financial discipline determines what the outcome would be.
Time and time again, I always stress the importance of having an emergency fund. Because I firmly believe that the only reason you should apply for a personal loan is because you have a financial emergency – an urgent and significant expense – and you have no other source of cash.
Having said that, what then are these types of expenses that deserve a personal loan application? Here is a list of good and valid reasons.
1. For debt consolidation
If you have multiple debts from different sources and different interest rates, this is an option. Apply for a personal loan to pay them all off, then just focus on paying off that personal loan.
Note that you will probably pay more interest charges if you do this; rather than paying all your debts individually. However, the main advantage here is that you don’t need to keep track of different accounts and be confused about your due dates.
2. Pay off high interest credit card debt
First of all, you shouldn’t really have any revolving balances on your credit card. It’s best to always pay the full amount owed on your credit card each month.
However, times can be tough, and if you’ve unfortunately amassed a large amount of money, then try to find a personal loan with a lower interest rate and pay off your credit card debt (and don’t use it until the last minute). personal loan is not reimbursed).
For example, if a P50,000 personal loan with a term of 12 months can have a monthly interest rate of 1.4%, then it makes sense to take out that personal loan to pay off your credit card balance. 50,000 P which brings in 2.5% per month. interest.
3. Make home repairs
Your safety and security are important. If there are home repairs needed and you don’t have emergency funds, or it’s not enough to cover expenses, then a personal loan can help.
Remember that having at least 6 months of your spending as an emergency fund helps a lot in this type of situation, and it also gives you financial peace of mind.
4. Pay medical bills
Most unforeseen expenses are related to health. Accidents and illnesses can happen anytime, for you and your family. And that’s another reason why you should have an emergency fund and health insurance (short and long term). But when funds are low and time is running out, then getting a personal loan may be your best bet.
5. For funeral expenses
Dying can be expensive. This is why people sometimes ask for “abuloy” or donations during vigils. And it is in such cases that obtaining a personal loan can also help if again you do not have emergency funds.
Most importantly, having a pre-needed memorial plan becomes your best form of financial protection during these times. Most of them are transferable to family members, so it doesn’t hurt to get one for yourself if your parents or spouse refuse to get one for themselves because it is a morbid idea for them.
6. Cover business expenses
If cash flow is tight and payments receivable are delayed, a personal loan can help give your business some buffer. It’s a quick and easy process compared to applying for a business loan, but the interest rates are higher.
However, if you need money as a business start-up capital, then I think it’s better to just find seed investors or raise funds in other ways, rather than taking out a loan. personal because there are too many financial risks involved.
7. Pay your child’s school fees
Your child’s education is important, and if you believe the same, then you should save for their tuition fees throughout the year, and not just 1 to 2 months before enrollment.
But again, times can be tough at times, and we find ourselves strapped for funds, especially when tuition fees suddenly go up. And so, this is a valid reason to apply for a personal loan.
8. Invest in professional development
If there is some urgent knowledge or skill that you need to acquire, which will help you earn more money, then it is okay to take out a personal loan to enroll in a course or a course if you don’t. have no funds.
A friend’s budget was tight because he was unemployed when he stumbled upon a great job opportunity. However, applicants should know some basic Korean knowledge.
He took out a personal loan and enrolled in a language course. After a few months he applied for this job and was accepted.
9. As long as it’s good debt
Whenever possible, avoid borrowing money, especially personal loans. However, if you have to, it should be for good reason.
There is good debt if the money is used for urgent and important expenses. And it’s a bad debt if it’s for a frivolous or unnecessary expense. Know the difference.
Plus, always shop around and choose the shorter term with the lowest interest rates. Always do the math and simulate the payments against your cash flow to ensure you can afford to pay it.
Fitz Villafuerte is a registered financial planner with RFP Philippines. To learn more about personal financial planning, attend the 93rd Bidding Program in January 2022. To inquire, send an email [email protected] or send an SMS to 0917-6248110.