Taking out a personal loan is a huge, long-term commitment. You shouldn’t make this decision on a whim or take the consequences lightly.

“With the current economic conditions, it is essential that South Africans become more realistic about their finances,” said John Manyike, head of financial education at Old Mutual.

He believes it’s essential to draw up a budget that you’re capable of sticking to. And making sure it can handle the added strain of down payments is incredibly important.

So, before you take out a personal loan, make sure you’re not doing it for the following wrong reasons:

1. Consolidating a loan with a higher interest rate

If you’re struggling to manage your debt, it may be time to consolidate it into a single, monthly payment. But you need to make sure you don’t consolidate your debt under a higher interest rate.

This will result in your down payments adding up to an unnecessarily much larger amount. If you’re uncertain about this, apply for debt counselling here.

2. Paying for your holiday

It may be tempting to take out a personal loan for your upcoming vacation. You’ll simply pay it off once you get back, right? But this luxury will place strain on your future budget. Saving for your holiday before your trip will cost you significantly less than paying off a personal loan after.

“Avoid unnecessary purchases on credit – if you can’t afford it, become disciplined and rather save for it,” said Manyike.

3. Buying a car

Since a personal loan can be used for anything, you may consider purchasing a car with the money. But this may not be the best use for your loan.

Taking out a secured loan, specifically through vehicle finance, will offer you lower interest rates than a personal loan. Since your car can be kept as collateral, the lender’s risk is not as high, and the fees can be reduced.

If you believe you want to take out a personal loan for the right reasons, apply for one through Moneyshop by clicking here.

Until next time,
The MoneyShop.co.za Team