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Top 5 Worst Reasons to Take a Personal Loan

Posted January 27th, 2010
by Staff

thelistSometimes, you need money. You need a lot of money, and you need to be able to pay it back over the long haul. If your credit is good enough, you can go to your local bank and take out a personal loan.

However, you should think long and hard before you do that. Make sure that the thing you need the money for is both necessary any worth the interest you’re going to be paying. The interest on personal loans is higher than car loans and mortgages, but less than credit cards, but it’s not especially low.

Here are the top 5worst reasons to take a personal loan:

  1. Replace an engine or a transmission. OK, so your vehicle’s dead. That sucks. What makes it worse is that you still owe two grand on it. Don’t make the situation worse by taking a signature loan of $3,000. The car’s probably not worth that much. Talk to your bank about rolling in what you owe on your old car into a new vehicle. You’ll save a ton in interest, and won’t be stuck with the clunker.
  2. Go on vacation. Look, we all need to get away. And, your kids aren’t getting any younger. In a couple of years, they won’t even want to go to Disney World. Still, you’re much better off taking the money that you’d spend on the loan (plus interest) and socking it away into a savings account that bears interest. Take the trip next year, and pay cash for it.
  3. Make home improvements. You’re almost always better of using a home equity loan to make home improvements. The rate will be significantly less. And, because the improvements will in theory increase the sale value of your home, their cost should come from your equity anyways.
  4. Bail money. Your rotten brother-in-law might have to spend a week in jail after his Drunk & Disorderly charge. Serves him right. Let him rot.
  5. Pay off another loan. While it can be sometimes a good idea to take out a personal loan to pay off high-interest department store credit cards, paying off other loans doesn’t make a whole lot of sense. You’re probably not going to be saving any money in the long run.

Photo via sunshinecity

Categories: Personal Loan Woes



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