Typically, a personal loan comes with a low interest rate. In the Philippines, some lenders even have interest rates that are lower (from 1.20 percent to 1.94 percent) than your credit card rates.
This makes it so tempting for some Filipinos to apply for a personal loan, without giving it any second thought. If you want to borrow from a bank, you have to be doing it for the right reasons.
Can you relate to any of these five awful reasons for getting a personal loan? Think twice before you send your loan application to the bank.
1. Money for your daily spending
You still have a few days to go before payday, and you’ve already spent most of your cash. Because you’re getting a bit desperate and panicky, the urge to get a personal loan is tough to fight off. Truth is, it’s only a temporary solution, which will hurt you in the long run.
When you live from paycheck to paycheck, borrowing money to make ends meet can be dangerous as it can put you deep into a bad debt cycle. Taking out a loan means paying for it in monthly installments. You already had a tough time covering your daily expenses, and you also want to add another bill to that?
Instead, take a good look at your financial situation and give it an honest assessment. Are there some things you can cut down on? Are you strict in following your budget? You can also start looking for extra sources of income such as selling a few things online or starting a small business.
2. You want to buy that dream item you’ve always wanted
So, you think your happiness depends on having the top-of-the-line smartphone? Come on.
Expensive gadgets, clothes, jewelry, and other items that cost triple your monthly salary is definitely not a good reason to get a personal loan. Be smart and accept that you can’t afford that item right now.
You have to prioritize your needs over your wants. You should only borrow money for something more important, such as your kid’s tuition fee, or maybe even something that will give long-term returns such as investing in a business.
3. Hosting a huge and expensive event for your friends and family
You get to watch a celebrity couple’s grand wedding at a premium island club, and you think to yourself, “why can’t I have the same?” The thought stays with you: of having the same experience, having great wedding photos, and how you would impress your guests.
Is all that really worth falling deep into debt for? If this is something you can really afford, then go ahead. But if you have to apply for a loan, then it’s probably a better idea to have a simple wedding.
After all, you don’t want to start your marriage in debt. Money can be the cause of a lot of couple’s problems so it’s best to stay smart and be financially responsible. If you can afford the monthly loan payments, then maybe it’s something you can consider.
4. Borrowing for other people
There are people who borrow money for other people, such as relatives and friends. This is definitely a bad idea.
There are going to be times when you see one of your friends or relatives in a tight spot. You truly care about them and want to help them out. The thing is, you don’t have that much money to lend to them, so you take a personal loan for them. Never do that, as it might not only lead you into financial woes, but could also result in a tarnished relationship with the person you want to help in the first place.
Sadly, money can cause a falling out between family members and friends. It’s important that you avoid getting into complex financial transactions with your loved ones.
Do you plan to get a personal loan? Make sure you are doing it for the right reasons. These loans can be very advantageous when used with careful consideration and correct planning.
Aldrich Policarpio is the Content Marketing manager of MoneyMax.ph, the Philippines’ leading comparison website for insurance, credit cards, and loans. You can save money on your car insurance and get the chance to win a brand new Toyota Vios at the same time. For more information, visit https://www.moneymax.ph/learn-more/promotions.