It’s the nature of emergencies to strike unexpectedly and, in many scenarios, it leaves one in a financial bind – leading to the consideration of a loan. Although personal loans are most certainly a viable option, you should consider approaching the question of whether you should use a personal loan to navigate through the crisis in a slightly different manner.
The real question should be, “is a personal loan the best option for this type of emergency?”. In this article we’ll look at an honest approach to some circumstances in which a personal loan could be a solution that one would consider, and assess whether it is actually the best option suited to the problem. It is essential to make informed decisions based on individual needs and financial circumstances, recognising that personal loans, while versatile, may cause more harm than good if used in the wrong circumstance.
- Vehicle breakdowns: If your primary mode of transportation, such as your car, is damaged, or requires some form of maintenance, then a small, short-term personal loan might be a suitable option. Firstly, it is important to assess what is available through your insurance and if all, or even just a portion of the cost can be covered. This way, you can limit the total amount you need to loan, which will ensure that you spend less money at the end of the day. It is always important to remember that, when taking a loan, you will end up paying more back than what you received.
- Medical Emergencies: Medical emergencies are unpredictable and often require immediate attention. Planning ahead in this instance can often provide you with a more thorough solution that carries less interest. Having some form of medical plan, or a full medical aid, will often ensure that medical issues do not destroy your monthly budget. However, you may also have a significant sum of money to pay over what is covered by your medical plan. Again, having gap cover on a medical plan will ensure that you will hardly ever be in a position where a medical emergency will end up costing you extra money out of your monthly budget. Of course, in the event that you do not have any medical plans or gap cover, a personal loan can come in handy in a situation like this, especially if the hospital or medical facility will not offer you the opportunity to pay off your account over a longer period.
- Unforeseen Home Repairs: A leaky roof, a burst geyser or any other significant issue at home might require urgent repair, which can often be a cost that is unaccounted for in your monthly plan. In situations where home repairs are essential for safety, or to prevent further damage, a personal loan can be a pragmatic choice. However, home equity loans may offer lower interest rates, but not everyone has sufficient home equity to tap into. You could also consider alternatives, like RCS or Builders store cards, which will allow you to purchase the required materials to fix the issue, and you can make use of a handyman service to fit it for you – this way you are only taking on the labour cost and can split the cost of the materials over a longer period – at times with little interest.
- Consolidating High-Interest Debt: This is quite a controversial one in terms of whether it is wrong or right to do with the use of a personal loan. When looking at the bare facts, consolidation can be useful in that it may allow you to reduce your monthly cost and also rid yourself of accounts that carry high interest rates – which could save you money in the long run. However, you need to be certain that the loan you take offers better interest, otherwise you are simply choosing to pay more over a longer period of time – leaving you in debt for longer.
- Business-Related Emergencies: While online loans may be an option for addressing some business-related emergencies, it's essential to explore specialised business loans first. Business loans will often come with lower interest rates and are tailored to the unique needs of enterprises. Entrepreneurs should ideally prioritise business-specific financing options before settling on a personal loan.
The decision to use a personal loan in an emergency should be approached with a nuanced understanding of the situation at hand. While these loans offer flexibility and quick access to funds, it's crucial to properly evaluate the nature of the emergency and explore all of the alternative financing options at your disposal. However, when using personal loans effectively, they can be a lifeline in urgent situations.
