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There is a range of credit options available to you should you need them, and personal loans are just one of many. So, in which situations should you consider a personal loan and when should you avoid one? Find out in this guide.
You can use a personal loan for (almost) anything including buying a new or used car, a large purchase such as furniture or electronics, a home renovation or even a holiday. Depending on the type of personal loan you take out the lender may have restrictions for what you can use it for. For example, car loans can only be used to buy vehicles.
Purpose | Can you fund with a personal loan? | Are there other financing options? |
---|---|---|
Vehicle purchase | ![]() | If the vehicle is eligible, opt for a car loan for lower rates. Unsecured personal loans are also an option. |
Debt consolidation | ![]() | You can opt for a debt consolidation personal loan or a balance transfer credit card. |
Home renovations | ![]() | As well as an unsecured personal loan, you can also consider a line of credit home loan or construction home loan. |
Taking a holiday | ![]() | You can opt for an unsecured personal loan for a holiday. |
Business use | ![]() ![]() | Some lenders such as Harmoney let you use personal loans for business purposes, but generally, you will be required to take out a business loan. |
While a personal loan is a viable option for the above scenarios, you also have other financing options to consider. These include:
Yes, it can. For example, if you are applying for debt consolidation you may already appear to be a higher risk than someone who is buying an asset, such as a car, or someone who is investing in their property by undertaking renovations. However, it depends on how the lender assesses your application's risk. Ultimately, your eligibility will come down to whether you meet the lender's application criteria and whether you can afford the loan.
While many loan purposes are acceptable, some are not always advised. Here are some situations where you may want to reconsider your loan application:
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Why can’t I use a personal loan to fund software I’m developing independently, not as a business? Do banks find someone who takes out a personal loan to repay debt or travel or whatever less of a risk than someone without debt with a steady income working on a personal project?
Hi Nic,
If you opt for an unsecured personal loan the way you use your loan amount is up to you. However, lenders will require you to list your loan purpose in the application and this may form part of their decision.
Hope this helps,
Elizabeth