A personal loan is funds borrowed for personal expenses, different from a mortgage or auto loan. Personal loans are ideal for financing large purchases, precautionary payments, or debt consolidation, among other reasons.

Personal loans can have a payback timeline ranging from a few months to even a few years. However, most personal loans have a fixed interest rate. Knowing that only a fixed amount is due every week or month can be a relief as a fluctuating interest rate is a headache in itself.

How do personal loans work?

Onceyou have applied for a loan, your lender will deposit the amount in your account within 24 hours. Once the deposit has been made, the repayment period will start.

Usually, personal loans don’t have collateral to finance the loan against non-repayment, like an equity home or savings account; therefore, one must carefully decide to take out a personal loan, weighing all future and present scenarios.

There are plenty of options available to finance your loan, and typically lenders will provide you with information on the loan and its repayment terms before the lending process begins. However, services like quick loans by Nectar in NZ are a phone call away from answering all of your questions about financing a loan, choosing the right payment plan, etc.

Of course, there are strengths and limitations of a personal loan, and you should always draw out a loan based on your financial capacity and the nature of the situation driving this decision. But how does one choose a good time to take out a personal loan?

Here are five reasons why you should take out a personal loan:

Debt consolidation

Whether you have surmounted a substantial credit card debt or need to pay off another loan you borrowed a while ago, a personal loan is often the right decision for consolidating another debt which can be beneficial for several reasons. When you apply for a new loan to pay off previous ones, the sum of the amount you owe consolidates into one payment. Combining your debt into one group is easier to manage without jeopardizing your credit score.

Another benefit is the difference in interest rates. Credit cards often have a higher interest rate than a personal loan. The interest rate for a personal loan is fixed, whereas a credit card’s interest is variable. Using a personal loan to pay off credit card debt is fundamentally beneficial as it saves you a lot of time and money.

However, there are other ways of paying credit card loans, like switching to a bank with a lower interest rate.

Credit Score Improvement

If you’re someone with a bad credit score and have found it challenging to pay off credit payments on time, then taking out a personal loan can also help improvea low score. In addition, grouping your liabilities will portray you as a responsible individual and boost your score.

However, don’t just borrow money to improve your credit score. If you’ve been making all payments on time and have a relatively good score, there is no need to take out a personal loan and add to your financial stress.

Paying for a Big Purchase

Everyone dreams of a big house and a better lifestyle. Whether you plan to renovate your existing home or upgrade appliances and commodities around the house, taking out a personal loan could be a much more viable option than using your credit card. Although you can also use equity from your home to pay for these expenses, a homeequity loan is often collateralized,and you would be risking your home.

Precautionary Expenses

Life does not come with an instruction manual, nor is there a bulletin board that would inform of emergencies in advance. While it is always better to have cash in hand for preventive purposes, sometimes we don’t, which is why taking out a personal loan to finance an unavoidable and significant expense can be the right decision, rather than relying on your credit card. However, this option must only be used for urgent matters like a medical emergency, not to fund a holiday. Although you can use a personal loan for anything other than necessities, debt experts strictly advise against doing so.

Better than a payday loan

A payday loan means money borrowed for a short period, with a high-interest rate. The next payday must pay such loans;however, it is often difficult for borrowers to do so. To ultimately pay the loan, borrowers demand a renewal of the repayment date, increasing the accumulated interest rate and the principal amount due – adding more to your financial burden.

It is better to take out a personal loan than a payday loan to avoid the said burden.In addition, the APR for a personal loan is way less than a payday loan, thus saving you from wasting money.


The bottom line is that while personal loans are an effective way of financing your expenses, they should not be overused. Since most personal loans are not secure and don’t have collateral, they should not be considered “free money.” You still have to pay a hefty amount, whether it is shortened to monthly or weekly payments. Moreover, there are always alternatives to taking out a personal loan in every situation, and one must always weigh the pros and cons before making a decision.