Getting a loan is not always a bad thing. There are good debts.

Have you ever wondered when is the time to take on a personal loan?

Personal loans are pretty flexible. They can be acquired easily and used for any purpose, unlike other types of loans such as a business or home loan. Though it’s easy to understand why this might sound like an obvious advantage, sometimes it can get the best of us and make us spend on stuff we don’t necessarily need.

That is why it’s important to understand when and why you should be using a personal loan.

If you are getting by just fine and wish to improve your lifestyle then this might not be the right time to get a personal loan as repayments might actually degrade your quality of life later on.

If you’re planning on furthering your education, purchasing a house or expanding your business, then a personal loan will be acceptable. There are more situations, so let’s find out what these circumstances are.

To Get Out Of Credit Card Debt


Trust us, credit card debts are way worse than personal loan debts.

Getting out of debt is already tough enough. There’s plenty of stress but this escalates when it is a credit card debt. When you keep lapsing your credit card bills and the compound interest suddenly snowballs out of your control, it’s likely that you will be terrified at first.

Credit card interest rates are at an average of 25%. This means that if you were to borrow $100, you may have to repay $125. You can eat so many cai png with that extra $25!

This is one of those four situations that call for a personal loan. A personal loan can help you repay your credit card bill before it snowballs further. This also shields you from burning through your savings just to pay your outstanding credit card dues.

Though it might sound a little counterintuitive to borrow more money to get out of debt, you have to understand that both are different types of debt.

Most Singaporeans are saddled with a crippling credit card debt. It can be difficult to completely pay off given the high interest rates that are compounding. Over time, it becomes very hard to reduce the owed amount as your repayments barely make a dent in the interest amount itself, the leftover of which is then carried over and added to the owed sum, making things worse each passing month.

Getting out of a vicious debt cycle where you end up wasting a lot of money just on interest (especially if you have multiple credit cards) is easy with the help of a personal loan.

As personal loans generally have a lower interest rate and one that’s not a compounding interest rate, they can be used to completely pay off your credit card dues and instead have a “better” debt.

It’s a good practice to not use your credit card until you have cleared the personal loan which was used to pay your credit card dues. If you need a personal loan right now, you can view our list of reliable financial institutions that can offer you the best loan.

In the case of savings being wiped out

There can be other reasons for your savings getting wiped out as well, apart from crushing debt or mounting compound interest on unpaid credit card dues. For example, a family emergency might be in the making or you might be going through a crisis that you know can wipe out your savings.

Though it might look like a bearable situation, a personal loan’s financial buffer is the much-needed cushioning you need here to tackle the emergency or crisis in the most effective way, without having to worry about minimizing costs and loading up on ever-increasing stress levels.

Crises can easily outlast your savings. These situations might force you to rely on your credit card more than ever, which will only go on towards worsening the situation in the long run.

That’s why a personal loan is warranted in such a case. Put some cash as collateral and the personal loan will be passed easily. If you wait until your savings have run dry and your credit card bills are mounting already then it won’t be possible to get a personal loan easily.

Read more about personal loan interest rates here.

To prevent your insurance from lapsing

Another situation when it’s right to get a personal loan is when your insurance is about to lapse. Many insurance policies require that you make a long-term financial commitment. Missing these premiums can result in the policy being terminated, which is something we want to avoid at all costs.

In some cases such as ILPs, life policies, and endowment funds, it can also mean that you will lose part of the premiums you have already paid. So there’s not just the risk of losing your protection, there is also the risk of incurring financial losses.

The closer an insurance plan is to maturing out its benefits, the more important it is to protect it with a personal loan. Comparing the insurance payout with the amount of loan you will be needing will tell you that it is perfectly fine to get a personal loan in this case.

Note that not all insurance policies are worth saving. If it’s a new policy and you have paid pretty low premiums so far then it might actually be a good idea to get it lapsed and terminated. You can then go for another insurance policy later on when you are in a better financial condition.

When a profitable investment opportunity presents itself

We often come across lucrative investment opportunities that will pay good interest over the next few years. What if such an investment opportunity presents itself but you don’t have the minimum investment amount?

Assuming you are sure about the opportunity’s results, it might be a good idea to go for a personal loan at this point.

Though the interest on your personal loan is surely a factor to consider, if a good investment opportunity presents itself then you can easily end up ahead by a few hundred dollars, if not more, when it finally matures.

When NOT to get a personal loan?


As important as it is to know about situations where a personal loan is appropriate, it cannot be disregarded that knowing when not to get a personal loan is equally, if not more, crucial.

It gets really difficult when you have already developed unhealthy spending habits. Based on a survey conducted in Singapore, more than 52% of Singaporeans don’t track their monthly spending.

  • An attempt to save a failing business should not be made using a personal loan. Business loans and assets can be written off or recovered, but a personal loan sticks with you and can potentially hamper your future finances.
  • Non-essential spending should not be done using a personal loan. This includes expenses such as holidays, branded goods, and expensive lifestyle products or services. If you go for a personal loan for non-essentials such as these then you are basically ballooning your debt. Your ability to repay the loan can also be outpaced by the mounting charges and late fees in some cases.
  • You should not go for a personal loan to purchase expensive items, no matter how much you want them. This includes expensive furniture, appliances, and other items.

The general rule of thumb is to separate your wants from your needs. Needs might be okay to prompt you to get a personal loan but avoid getting one for your wants.