While there are some great low-interest loan deals on the market. In plenty of cases, it’s more convenient to reach for your credit card to make purchases. But if you have a large expense coming up, or find yourself needing to cover a bill that’s bigger than expected, a personal loan can often be the better option.
Keep in mind, though, that just because somebody offers you something, it doesn’t mean that you have to take them up on it. Debt, especially personal loans, should never be taken lightly.
Make sure you crunch the numbers on your finances and consider if a loan is going to be truly manageable, rather than add more stress to your life.
1. Home renovations
Whether you’re building a new deck, or refitting an outdoor area, kitchen or bathroom, a personal loan can be a helpful tool to make renovation dreams a reality.
And sensible improvements can add hugely to a property’s worth. Think the basics, like modern, fresh bathrooms and kitchens, or opening up a wall to create flow onto a deck. (Avoid hot tubs, extravagant bath tubs, flat screen TVs. Keep things smart and future-buyer friendly.)
Purchases like these aren’t cheap, but if they’re done with on-sale value in mind, they can reap major rewards when it comes time to sell.
However, rather than take out a personal loan, if you own your home and have enough equity, it would be more sensible to put the cost of your renovations on your mortgage. Or, if it’s a large project, take out a construction home loan. With mortgage rates at record lows, you could make substantial interest savings.
2. Buying a vehicle
Getting a loan pre-approved for a vehicle purchase often means you can negotiate with the car dealer on price. This can give your greater flexibility than if you purchase the car using dealer finance.
Or perhaps the vehicle you have set your heart on is being sold privately. A personal loan means you can buy the car, even though it’s not through a dealer. Just make sure you check that there’s no finance owing on the car before you make the purchase.
3. Medical expenses
If there are medical procedures you’ve been putting off because they’re not covered by your health insurance plan, a personal loan could help. A personal loan can help fund anything from dental work, to fertility treatments and elective cosmetic surgery.
And while we are fortunate to have government-funded health and disability services in New Zealand, the public system isn’t perfect. If serious illness suddenly affects you or a family member and urgent treatment becomes a priority, private healthcare can sometimes be the only option. A personal loan can provide immediate access to the best healthcare when it’s needed most.
4. Funding a wedding
Personal loans can be used for a lot of short- and medium-term goals. Are there wedding bells in the air? If your budget is feeling stretched, you could consider taking out a personal loan. It means you can pay deposits to secure things like venues and the caterer of your choice.
Personal loans can be tailored to your budget, and you can often make additional payments without penalty. So if any generous wedding guests happen to give you money as a gift, you could put it towards paying off the loan.
But if you are planning to use a personal loan to pay for a wedding, and you’re renting, please do consider your priorities. Is feeding and watering your relatives for an evening more important than a home deposit?
Getting into debt to finance your nuptials doesn’t make a lot of financial sense. For more practical tips on how to avoid a marital blowout, read our story: Wedding Costs & How to Avoid Overspending.
5. Debt Consolidation
If you’ve a bunch of different debts, for example credit card debts or outstanding personal loans, it can make sense to streamline them into one easy-to-manage payment. It’s also likely that you’ll be able to organise a better interest rate, saving you money, too.
This is especially true if you take out a secured personal loan – for example on your house or other valuable asset – rather than an unsecured loan, as they tend to come with higher interest rates due to lenders’ increased risk exposure. For more information on debt consolidation, read our How to Consolidate Your Debt story.
While Canstar’s research can help you compare the different personal loans on the market, a personal loan is, as the name suggests, a personal decision, and one that should be made only after thoroughly going through your finances. Make sure to compare what’s out there below with Canstar.
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