What do people use a personal loan for?
You can use a personal loan to pay for a multitude of things – almost anything, in fact.
The most common and expected uses for a personal loan include the following:
- A new or used car (see Car Loans)
- Debt consolidation
- A wedding or honeymoon
- Home renovations
- Home renovations
- Travel overseas
- Caravan or motorhome
- Education or study (e.g. student loans)
- Starting a small business venture (different to Business Loans)
But other people have more out-of-the-box hobbies. What do people use a personal loan for … when they’re asking for something more unexpected?
Horse and Horse Trailer
This is actually way more common than you might think. Why didn’t Daddy buy me a pony? Because they’re unbelievably expensive!
While you can get a horse for a few thousand dollars, it’s quite common for horses to cost up to $10,000, and a pedigree bred mare can be upwards of $20,000. When it comes to racehorses, global economic research showed an average sale price for yearlings in 2013/14 of $70,000 (and a maximum of $250,000). The majority of racehorses sat around a median sale price of $35,000.
Once you’ve bought the horse, the RSPCA points out you then have to face expenses like stables ($500/month on average), food ($200-$400/month), annual vaccinations and other vet car ($100/month on average), and a horse trailer or horse float to transport it.
On top of that, you can end up facing $5,000 to $10,000 on surgery for colic or an accidental injury while you’re still trying to repay the loan.
In terms of finances, buying a new horse should be approached the same way you would buy a new car. Save up as much as you can for it first, and hopefully the full purchase price.
Just like you can get a personal loan to buy a boat, you can fork over interest to put a jet ski in the water on weekends. But it’s hard to argue with the fact that jet skis come with their own registration and fuel costs, and they need their own space in the garage.
You’ll most likely be better off financially if you pay a few hundred dollars to rent a jet ski for the day when the tide is right and you’re in the mood for a spin on the water.
Private School Tuition Fees
As we reported in our 2016 back to school special, Australian kids starting pre-school this year can expect to pay on average $381,800 for their private schooling from pre-school to Grade 12. Children born this year will be looking at an estimated $468,000 for their school years. And history shows that private schools don’t squirm at putting up their fees each year by double the rate of inflation.
So the Australian Scholarships Group has created the School Plan personal loan to help parents budget for the lump sum payments of tuition fees. The ASG pays the fees directly to the school, and parents make repayments fortnightly or monthly by direct debit. An interest rate of 3.95% to 5.95% is charged (at the time of writing), known as the “service fee” for the plan.
On the other hand, we know that public schools can offer the same or better academic results for your child at a fraction of the price. So using a loan to pay for private schooling may not be the brightest idea after all.
And then there are the Bengal Tigers
“I want to buy a Bengal tiger…”
This was just one of the odd requests for a personal loan received by Lloyds TSB. They reported receiving other bizarre requests for loans to buy such things as:
- Ingredients to bake the world’s biggest cake
- Materials to build a robot to use on the TV show Robot Wars
- A dress belonging to the Spice Girls that was going for auction
- Application fee for the waiting list to be cryogenically frozen
- Repairs and restoration for an ageing motorbike, including removal of a nest of rats from inside the engine
But those requests came from quietly eccentric British folk. Let’s take a look at what Aussies ask for a personal loan to buy.
Should you really use a loan?
Ask Siri, “Can I borrow some money?” and she’ll say, “Neither a borrower or a lender be.” (Or she’ll remind of that time that you borrowed her stuff and never returned it.)
If you’re on a budget, our advice is probably pretty much the same – saving up for it is a better way to buy things than using credit that you have to repay. Using savings means following a sensible plan as part of your usual budget and then paying just one initial expense.
In contrast, using a loan can be a big mistake because it adds a big repayment to your ongoing monthly expenses and you end up paying more than the purchase price because you’re also paying interest.
If you do use a personal loan to fund any of your interests, we recommend that you compare interest rates and fees on our website first and find outstanding value for the loan amount you want. Then make sure you have income protection, so that if you were suddenly unable to work due to illness or injury, you could still afford to meet your repayments.
This advice is general and has not taken into account your objectives, financial situation, or needs. Consider whether this advice is right for you. Consider the product disclosure statement (PDS) of any loan before making a purchase decision. For more information, read Canstar’s FSCG.