Many people are in a position where they can take a personal loan. I get SMS’s every week telling me how much I qualify for ……………..   should I take that loan?

This is a question I get from different people in different walks of life all the time, and there is no right answer, and I will explain this as we go along, it depends really on what the loan will do for your life.

What are you going to use the personal loan for?

Is it for business or education, is it to fund your lifestyle, is it because you are short at the end of most months?

If it’s going to make you more money after it has been settled,  then Yes.

If you are buying consumables to get through the month, then No

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Will it enrich your life financially or increase your wellbeing?

Not quite so easy to answer,

If it’s for education that will make you more money long-term, then yes

If it’s for a course or hobby that will enrich your life, and you can afford it, and you have worked out how much extra you will pay in interest and costs and you still think it’s a good idea, then yes, but first look at the savings option.

What about affordability, how will I know if I can afford the loan?

Make sure you know exactly how much your installments will be. Look at your budget, or work out a budget, and make sure that you will be able to pay every month.  Also, work out the total you will pay over the period.  Shop around and ask how much their interest rates are.  Choose the loan which has the lowest interest rate over the shortest period you can afford.

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What are you going to have to sacrifice to pay it back?

If you are on a budget as most are, you need to work out what you will have less of to afford the loan repayments.  When you do this exercise before taking the loan it might discourage you.

Is it a good or a bad idea to take a loan to buy a car?

This has advantages and disadvantages.

Interest rates will be much higher on a Personal loan than on vehicle finance, so you will pay more money over a longer period.  That’s a huge disadvantage.

The only advantage that I have been told by clients is that the loan is not an asset-based loan, in other words, it is not legally attached to the car, even if you used the money to buy the car, you could have used it to eat or buy clothes.  So should you default on the loan, they cannot re-possess the car.

One shouldn’t plan to fail, so unless the car is too old, or the amount too small, I would get bank car finance, it will cost a whole lot less

So to recap on the question, should I take a personal loan?

If it’s going to make you more money, then yes.

If it’s going to enrich your life, then maybe.

If it’s to pay for everyday consumables, then no.