If you ask people their opinions on personal loans, you’ll get a variety of answers. Some think they’re a good idea since you can pay off or consolidate debt. Others believe they could put you in a worse financial situation since you could lose an asset or get stuck with high interest rates.
But there are some situations where the majority would agree it’s not a good idea to get a personal loan. These are the worst reasons to get a personal loan.
With the average wedding costing $33,391, according to The Knot 2017 Real Weddings Study, it’s hard for many people to afford their dream affair. To cover the costs, you might consider taking out a personal loan, but going into debt isn’t the best way to start off a marriage.
The cost isn’t a necessary one, and you’ll end up paying more in the long run with interest charges. Your loan doesn’t help to reduce your debt like it would if you were consolidating credit card balances. Instead, it adds on to your existing debt.
You should only plan a wedding that you can afford out of pocket. You could also cut costs before resorting to a loan. That could mean reducing the number of people you invite, opting for a buffet option, or postponing the wedding until you can afford it.
2. Investing in the stock market
Some swear that investing in the stock market helped them amass a fortune. That’s how Grant Sabatier said he became a millionaire by 30. But he used money made from side hustling and savings to invest, not a loan.
The risk of taking out a personal loan with the intent of investing the funds is that you could lose all the money. Add interest charges on top of your personal loan, and you’re putting a lot of money on the line.
If you invest your savings or extra money you have on the side, you could lose it all, but at least you won’t be on the hook for paying interest.
3. Covering daily expenses
Unfortunately, 49% of Americans live paycheck to paycheck, and 61% don’t have enough cash to cover six months of living expenses, according to a 2017 GOBankingRates survey. But that’s no reason to take out a personal loan.
With most loans you take out, you’ll repay them in monthly installments. If you’re already paying for rent, student loans, and other costs, adding a personal loan could make it difficult for you to get out of debt or build savings.
Rather than take out debt to cover living expenses, focus on how you can cut costs. For example, can you reduce how much you spend on eating out? Can you live in a cheaper home? Figure out what your absolute necessities are and learn to create a budget around those costs before considering a loan.
4. Taking a vacation
While taking a vacation gives your mind and body time to relax and reboot, you should never take out a loan to cover one. You might enjoy sipping margaritas, getting massages, and lounging by your private pool, but coming home to a mountain of debt will make that getaway buzz quickly disappear.
Amazingly, 74% of Americans surveyed have gone into debt from a vacation, according to a 2017 report by LearnVest. Worse, vacationers accrued an average $1,108 in debt from their time off. But like a wedding, you should only spend the money you saved up to pay for travel. After all, it isn’t a necessary expense.
Instead, set aside money in your budget to plan for a vacation. And avoid some common travel spending mistakes such as buying food at the airport.
5. Paying medical bills
It’s no surprise that a huge financial headache for many people is the cost of health care. In the U.S., 29% of adults have trouble paying their medical bills, according to a 2017 Kaiser Family Foundation study. So, you might be tempted to borrow some money to cover the unexpected cost if you get hurt or sick. But it’s one of the worst reasons to get a personal loan.
There are many other steps you should take first if faced with a high medical bill. First, review any bills for errors. You could owe less than you thought.
If you can’t afford your bills, try negotiating with your medical provider. They might be willing to charge you less or put you on a payment plan. This could help you avoid paying interest on your debt or reduce your overall cost.
Should you take out a personal loan?
Although there are many situations where taking out a loan is a bad idea, it’s important not to bash the idea entirely. There are many reasons personal loans are a good idea and can actually help reduce your debt. Just be careful not to use a loan to cover superfluous costs.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|