Should I get a personal loan? Tips to consider
Is getting a personal loan the best way to fund a big expense?
Getting a personal loan might not always be a good idea. Let’s explore the reasons why you should or shouldn’t get a loan, and five tips to help you decide if it’s the right option for you.
When should you consider getting a personal loan?
Personal loans can be a way to reach a short-term goal, like paying for home renovations or consolidating debts into one cheaper and more manageable repayment. They can make sense when you need extra cash to cover unexpected bills (e.g., home repairs), if your emergency fund is depleted or in cases where a personal loan works out cheaper than other types of credit.
But there are as many reasons why getting a personal loan might not be the best approach.
What to consider before taking out a personal loan
Some people take out personal loans to fund a holiday, wedding or new car. Be mindful of getting a personal loan to pay for non-essential expenses or ‘bad debts’. Bad debts are purchases that cost you money but have no value (such as a holiday) or will decrease in value over time (such as a worn wedding gown or a boat).
That’s not to say you should never use a personal loan for these expenses, but it is important that you think through whether you really need a loan, if you can afford it, and whether it will be worth it in the long run.
Compare Personal Loans with Canstar
The table below displays some of our referral partners’ unsecured personal loan products for a three-year loan of $20,000 in NSW. The products are sorted by Star Rating (highest to lowest) followed by comparison rate (lowest to highest). Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. Use Canstar’s Personal Loans comparison selector to view a wider range of products on Canstar’s database. Canstar may earn a fee for referrals. Read the Comparison Rate Warning.
- Additional repayments
- Redraw facility
- Top-up facility
- Application fee: $0
- Annualised fee: $0
- Loan terms available: 3 years to 7 years
- Additional repayments
- Redraw facility
- Top-up facility
- Application fee: $175
- Annualised fee: $0
- Loan terms available: 1 year to 7 years
- Additional repayments
- Redraw facility
- Top-up facility
- Application fee: $0 up to $600
- Annualised fee: $0
- Loan terms available: 3 years to 7 years
- Additional repayments
- Redraw facility
- Top-up facility
- Application fee: $300 up to $1200
- Annualised fee: $0
- Loan terms available: 1 year to 7 years
- Additional repayments
- Redraw facility
- Top-up facility
- Application fee: $300 up to $1200
- Annualised fee: $0
- Loan terms available: 1 year to 10 years
The Car and/or Personal loan products displayed above that are not “Sponsored or Promoted” are sorted as referenced in the introductory text and then alphabetically by company. Canstar may receive a fee for referral of leads from these products. See How We Get Paid for further information.
Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular product. If you decide to apply for a personal loan, you will deal directly with a financial institution, not with Canstar. Current rates and fees are displayed and may be different to what was rated. Rates and product information should be confirmed with the relevant financial institution. For more information, read our detailed disclosure, important notes and additional information.
*Read the comparison rate warning. The results do not include all providers and may not compare all the features available to you.
5 tips to prepare for a personal loan
That being said, if you are considering getting a personal loan, there are 5 things you can do to help you decide.
1. Be realistic with your cashflow
Review and update your budget for an accurate view of your financial health and standing. If you fix up your budget and find you only have a small amount left each week, it may be too unrealistic for you to take on loan repayments while meeting existing expenses and maintaining your quality of life. Be honest with yourself about what you can realistically afford.
2. Have a clear and purposeful reason for getting a personal loan
Get clear on why you’re applying for a personal loan. If it’s for everyday expenses, it would be wise to rethink and research other options. You might feel that getting a personal loan to help pay for home renovations or to consolidate your debts might be a more worthwhile reason, as you could potentially be financially better off longer term. Consider the bigger situation, research all your options and revise your budget.
Personal loan repayment calculator
3. Plan ahead. Reverse engineer your success.
Taking out a personal loan requires determination and discipline to consistently meet repayments. However, you may be able to work your budget and see if you can put aside extra cash to make additional loan repayments along the way. Even $50 a month extra can reduce the interest you pay, and decrease your repayment term (should your loan terms and conditions allow additional repayments).
4. Get comfortable with delayed gratification
We live in a world of instant gratification where credit cards and buy now pay later services allow us to purchase things we don’t have the cash on hand to pay for. It can make it easy to live beyond our means and get ourselves into unnecessary debt.
Before taking out a personal loan, try setting a few financial goals. For example, if you’re considering a car loan, could you make do for a few more months and save a deposit instead of borrowing the full amount? Your repayments will be reduced and your total loan amount will be too, meaning you’ll have more money to save or spend!
→ Discover more budgeting and savings tips
5. Shop around for the right personal loan (for you)
The more research you do to find the best deal for your needs and circumstances, the better you’ll understand which loan will work best for you. You’ll need to consider things like annual fees; interest rates; the repayment term or loan term (how long the loan lasts); and the features, terms and conditions, such as whether you’re able to pay the loan off early.
Good research should also prevent you from falling into the trap of making multiple applications (especially for loans you’re not eligible for), as this can negatively affect your credit score and eligibility for finance in future.
2023 Outstanding Value Personal Loans Award Winner
- Additional repayments
- Redraw facility
- Top-up facility
- Application fee: $300 up to $1200
- Annualised fee: $0
- Loan terms available: 1 year to 7 years
100% online quote. Won't affect your credit score
No monthly account keeping or early repayment fees
- Additional repayments
- Redraw facility
- Top-up facility
- Application fee: $575
- Annualised fee: $0
- Loan terms available: 3 years to 7 years
Canstar may earn a fee for referrals from its website tables, and from Sponsorship or Promotion of certain products. Fees payable by product providers for referrals and Sponsorship or Promotion may vary between providers, website position, and revenue model. Sponsorship or Promotion fees may be higher than referral fees. Sponsored or Promotion products are clearly disclosed as such on website pages. They may appear in a number of areas of the website such as in comparison tables, on hub pages and in articles. Sponsored or Promotion products may be displayed in a fixed position in a table, regardless of the product’s rating, price or other attributes. The table position of a Sponsored or Promoted product does not indicate any ranking or rating by Canstar. For more information please see How We Get Paid.
Cover image source: pattarawat/Shutterstock.com
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This article was reviewed by our Sub Editor Jacqueline Belesky before it was updated, as part of our fact-checking process.
2023 Outstanding Value Personal Loans Award Winner
- Additional repayments
- Redraw facility
- Top-up facility
- Application fee: $300 up to $1200
- Annualised fee: $0
- Loan terms available: 1 year to 7 years
Try our Personal Loans comparison tool to instantly compare Canstar expert rated options.
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- Rated 5-Star by CANSTAR for Outstanding Value
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