Most financial gurus will tell you to that it’s rarely a good idea to take on more debt, especially if you have retirement and investing goals you want to meet. But rules are (sometimes) made to be broken.
There are some occasions when it’s okay to take out a personal loan.
1. When the Purchase is Essential
Some purchases are essential to our day-to-day lives. If you total your car and you need transportation to get to and from work, you may need to take out a personal loan to cover the cost of a new car.
If you plan to buy a used car and the dealer doesn’t offer financing or you purchase a car privately, you’ll need to take out a personal loan to cover the cost.
Other essential purchases might include:
- Dental work
- Medical procedures
- Car repairs
- HVAC repairs
Before taking out a loan, ask yourself whether the purchas is absolutely necessary.
2. When You Can Afford the Payments
Before you take out a loan, create a realistic budget that includes your loan payment. If you can’t afford the payment, then you may want to rethink your decision.
If you can afford the payments and the purchase is necessary, then taking out a loan may make your life easier and less stressful.
It’s easy to say that you’ll figure out a way to make the payments, but what if that second job doesn’t line up in time? You may find yourself struggling to make ends meet.
3. When You Can Pay it Off Early
Maybe you want to take out a loan because you know the money is coming; it just hasn’t arrived yet. If you must make a major purchase before the funds make it to your bank account, it may be okay to take out a personal loan and pay it off early.
Keep in mind that terms for personal loans can range from 6 months to 10 years, and depending on the lender, there may be prepayment penalties.
Know and understand the terms of the loan before signing on the dotted line.
4. When You Have Good Credit
If the purchase is essential, you can make the payments and you havegood credit, it’s may be okay to take out a personal loan.
Having good credit means that you’ll likely pay a lower interest rate on the loan and less money over the lifetime of the loan.
But again, it’s important to make sure that you can absolutely afford the payments. Otherwise, you may wind up tarnishing your good credit score.
