If you’re thinking of taking out a personal loan but feel unsure as to whether it’s the right route to take in your circumstances,then hopefully after reading this article
you’ll have a better understanding of what you should and shouldn’t use a personal loan for.
What’s a personal loan?
A personal loan is sometimes referred to as an unsecured loan, as it won’t be secured against any of your assets, such as your house or car. The amount of money you’ll be able to borrow with a personal loan is typically lower than with a secured loan, and they are usually intended for spreading the cost of a “big ticket” item like a washing machine or car that you can’t afford to buy outright. For instance, Ocean personal loans are available from £2,000 - £5,000, whereas Ocean homeowner loans are available from £10,000 - £250,000.
Some of the things you CAN use a personal loan for
You may decide to use the money from a personal loan on a whole host of things, such as making home improvements, purchasing new appliances, buying a car or even helping towards wedding costs.
In some cases, you might want to use a loan to consolidate your other borrowings into a single monthly repayment.
Whatever you are considering putting the money towards, it’s important to remember that you should only ever borrow money if you are confident you can comfortably afford the repayments, not just now but for the entire duration of the loan. Think about how you might cope with the repayments if your circumstances changed.
Some of the things you shouldn’t use a personal loan for
There are many reasons you may wish to get a personal loan, but there are certain things you should never use this kind of credit for.
Any form of gambling, including investing, is a complete no-go with any type of credit. With both of these purposes, there is a chance you will lose the money you spend for good, and to provide credit for either of these reasons would be irresponsible of the lender. Plus, were you to lose the money gambling, you could potentially place yourself in severe financial difficulty.
Taking out a loan on behalf of someone else - e.g. a member of your family or your partner – is another pitfall to avoid. If for some reason they can’t keep up with the repayments, or if your relationship breaks down, you would be held responsible for paying the debt back, as it was taken out in your name.
Taking out a personal loan to place a deposit on a property is a bad idea. For starters, your mortgage provider will ask for the source of the deposit, so you will have to disclose the borrowing and, as a result, they are unlikely to offer you a mortgage. Not only this, but taking on regular repayments for both a mortgage and personal loan could potentially put you in financial difficulty.
Other reasons to think twice before borrowing
If you’re thinking of borrowing money to cover day to day living costs – such as food, utilities or your rent or mortgage – don’t! If you can’t cover living costs from your income, your finances are already dangerously stretched and taking on an extra repayment isn’t going to help.
Similarly, think twice about using a loan to fund your “lifestyle”. A loan can be a good way to spread the cost of a big ticket item like a car, but it generally isn’t suitable to borrow to fund things like nights out or clothes shopping. Personal loan providers have a duty to lend responsibly, but as a borrower it is important that you use credit responsibly too.
Disclaimer: All information and links are correct at the time of publishing.