Things You Should Avoid Paying Through a Personal Loan

Personal Loans Mistakes to Avoid

Personal Loan Mistakes to Avoid

Personal loans are a convenient way of paying for expenses like elective surgery, wedding, small home improvements, and others. You can use it to pay for any expense, no questions asked. What makes them such a popular choice to meet our personal financial requirements?

  • Personal loans do not require any collateral.
  • Most lenders offer quick loan approval which means that you can have access to funds during an emergency.
  • You can choose a tenure that works for you.
  • You have the option of paying off the loan in full or small amounts.
  • Many banks now offer personal loans with zero interest rates, and without conducting a credit check (charges and other fees may be high for these loan types).

All these reasons are enough to convince anyone of the benefits of a personal loan. However, it is better not to make certain purchases with a personal loan. Let us take a look at some of them.

1. Down Payment for a Home or a Car

Taking a personal loan to put down the initial payment for a house isn’t really a good idea. If you want to apply for a personal loan to make a down payment for your new home, it is very likely that you will need to take a home loan to actually go ahead with the purchase. Personal loans have a higher rate of interest and you might end up paying a lot more than expected.

Similarly, it does not make sense to opt for a personal loan to make a down payment on a car. Especially, when there are car loans that you can take for this specific reason.


  • Sign-up for a home loan or a car loan instead of taking a personal loan. There are packages that will actually help you sort and manage your finances in a better way.

2. Pay For Your Dream Holiday

Everyone would love to travel to new places and explore the world. But does it make sense to take a personal loan to finance a holiday? We have already agreed that personal loans come with a high interest rate. Paying interest for 2 or more years for a trip does not make for smart financial planning.


  • It is always better to save up to pay for a holiday. This way, you will not have to pay for more than what you actually spend.

3. Investment in Stocks and Shares

Stocks and shares are unpredictable, and you will never know which investment will pay you rewards and which will wipe out your funds. In such a scenario, it may not be a good idea to take a personal loan and use to invest in stocks. Speculative activities like stock market and gambling are not the best reasons to apply for a personal loan.


  • If you are looking to buy stocks and shares, it is best to put aside funds and invest in small increments to safeguard yourself against any loss.

4. Pay off Your Student Loan

Are you thinking of taking a personal loan to repay your student loan or pay for higher studies? That may not be such a good idea. When it comes to financing your education, it is always better to opt for a student loan. This is because education loans are designed in such a way to allow students to repay the amount in a flexible and convenient manner.

Paying off your student loan with a personal loan will mean that you will end up paying higher interest. This can put a strain on your finances.


  • Student loans offer low interest rates and flexible repayment plans to make it easy for the borrower. You also have the option of applying for deferment if you are not in a strong financial situation. In addition, student loans are tax-deductible. which means that you can file a claim for the interest you pay on the loan.

5. Start a New Business Or Expand Your Company

Taking a personal loan to finance your company can work in your favour if your business hasn’t take off yet. You can secure a loan amount and use that to set up your venture. What will not work in your favour is the high interest rate and the fact that you can only borrow a limited amount through a personal loan. Moreover, this option will mix up your personal and business finances.


Personal loans can be a great financial resource in times of need. But it is always better to heed caution to the wind when it comes to taking a such a loan. The benefits of a personal loan can be tempting but it is important to rethink your finances before taking the step. Compare loans available in the market through comparison sites and apply accordingly.

About Aditi Singh 353 Articles
Aditi Singh is an independent content creator and money finance advisor for 5 years. She is recently added with Investment Pedia. Internet users are always welcome to put comments on her contributions.

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