Do I need a loan for this?
“This” could refer to any number of things. A car. A best friends only vacation. A kitchen remodel. Debt consolidation. One thousand pet budgies.
The key is discerning on what occasions a personal loan may be the best course of action. And y’all, nine times out of ten, a best friends vacation, one thousand budgies, or a risky investment ain’t it.
7 Reasons Why You Might Need a Personal Loan
In case you need a refresher, Team Mogo generally considers unnecessary debt to be a bad thing—especially debt with a high interest rate or credit card debt. Other loans, like personal loans, student loans or mortgages, can occupy a totally healthy and manageable place in your finances.
For example, here are a few scenarios where a personal loan might be the right choice for you.
1. Debt Consolidation
Personal loans can be used to consolidate debt.
In this case, you could use a personal loan to pay off your credit cards and perhaps additional amounts you owe to other lenders. This way, instead of having several loans charging different interest rates and each having different payment dates and obligations, you have only one: your personal loan.
Personal loans can be great for debt consolidation because they often have lower interest rates than other types of loans. For example, payday loans (bad news!) can cost up to $17 in interest for every $100 that you borrow. This is equivalent to an annual interest rate of a whopping and unsustainable 442% according to the Government of Canada!
So if you’ve got debt in a few different places, like credit cards or a payday loan, you may wish to consider using a personal loan to consolidate it. Consolidation could be a more cost effective and straightforward way to pay down your debt.
2. Home Renovations
For those of us that own homes, it can be tempting to undertake a renovation every few years. Be it a much needed fix like a leaky roof or an aesthetic-driven facelift for your kitchen, a personal loan could be a viable option for you if a renovation is something you desire and can afford..
However, renovations can quickly become more costly than what is initially estimated and budgeted for; therefore, it can be easy to get in over your head. If you’re thinking about obtaining a personal loan to help cover the costs of a home renovation, it is important to consider that you are effectively amortizing the cost of your renovation over that loan’s term. So, you should take care to do so responsibly.
Otherwise you’ll have a real nice kitchen but could have a real bad credit score. And that ain’t it either!
3. Emergency Funds
We all hate emergencies, they aren’t good. Name one emergency that isn’t bad. Okay. Emergency wine and cheese night with your best pals. That’s fair. But that’s it.
Emergencies—car repairs, funerals, home damage, theft, you name it—can not only be stressful on our minds and emotions. They can also be very stressful for our wallets and sometimes come with lasting implications.
For example: insurance deductibles. It’s not uncommon to see big insurance deductibles in more complex insurance policies. If your pet is a breed with many known health problems, for example, an insurance company may require a deductible of several thousand dollars before they’ll cover any part of a claim related to veterinary costs for your pet.
These costs, which often come up quite suddenly, could warrant the use of a personal loan.
4. Making a Large Purchase
Has your fridge ever just… stopped? Stopped working, stopped being a fridge. Like one day it just woke up and chose violence.
Appliances for your home are big purchases, and when your old ones break, you often need a quick fix. Typically, you have two options: live without a fridge like it’s the 1800s or find a way to buy a new one.
This is another scenario where a personal loan could be useful. A broken appliance may be cause to pull from your emergency fund, but if you're concerned about draining that account, a low interest personal loan for just the amount of the appliance could be a better option
Alternatively, a joyous occasion: fun big purchases.
This is an occasion where avoiding loans can be very feasible. But if you’re pressed for time and find it absolutely necessary to make your big fun purchase immediately, a personal loan you pay back over the following months could be a good option depending on your individual circumstances.
5. Replace Credit Card Debt
Listen, not all personal loans are equal. If your credit score isn’t great, you may be offered less than ideal interest rates.
On the flip side, if you have a very good credit score and a good history with your lender, they may offer you an excellent interest rate—so good that you’d be paying less interest on a personal loan than on your credit card.
Personal loans can not only be useful for consolidating debt, they could also save you money over the long term if you use them to replace costlier debt.
For example, you might have one credit card that charges a 30% annual percentage rate (APR). If you’re looking to pay off the balance owing on that card because you want to change banks, get a different credit card, or are maybe just hoping to get your debt under control, a personal loan with a lower interest rate might be a great option.
6. Medical Bills
In Canada, we’re lucky to have a healthcare system that ensures we can receive medical care without paying an arm and a leg. But there are lots of elective procedures that aren’t covered by MSP or other insurance providers.
For example, procedures like laser eye surgery generally are not covered, and can be very expensive! For many folks with very poor vision, that procedure could be life changing. In such a case, it could be worth using a loan rather than saving up for the procedure over many months.
Again, as long as your personal loan has a solid interest rate and a term suitable to you for repayment, it could be a viable option for certain healthcare related scenarios.
7. Start Up Costs
If you’re starting a business, you might need a start up fund. These are funds generally used to pay for things like new inventory, office rent or construction costs, or employee wages in the very early days. Start Up Costs are intended to be used to get your new business up and running and generally help get things off the ground.
If your goal is to develop the next big social media platform like the new Twitter or something (make there be fewer trolls, pls thx), you might be able to get start up funds from interested investors.
But if you’ve yet to prove your business concept or don’t have that kind of aspiration, a reasonably sized personal loan could help and become necessary.
Obtaining a personal loan for a new business venture is always risky because you have no guarantee that you’ll earn money in your new business to pay the loan back.
This is also why you should never use a loan to invest in something like Bitcoin, because you could lose everything you invest and still be required to pay back your loan to your lender. Just remember: in the world of debt, less risk is usually the better way to go, but it will always depend on your individual circumstances.
Get a Personal Loan Online with Mogo
But as it happens—that is, as life happens—tons of Canadians find themselves in situations that result in them considering obtaining a personal loan every year. Just as well, tons of Canadians also safely and cost effectively take out personal loans and repay them on schedule every year.
The key is to take out, use and re-pay your personal loan responsibly.
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Well hello there, it’s us, Mogo. Your favourite financial technology company. We offer loans. Not because we love ‘em, but because we know Canadians may need ‘em.
Think you might need a loan? We can help with that! See if we can help you find a loan in just 3 minutes, and maybe even get pre-approved, all without affecting your credit score¹. We’ve got flexible loan products and loans in varying amounts. Plus, our friendly Product Specialists are here to help you understand the details of your potential loan and in-app tools to help keep you on top of your loan obligations and debt repayment.
Getting a personal loan (and where you get it from!) is a personal decision. Act wisely, choose responsibly, and always do your best to set yourself up for success.
This blog is provided for informational purposes only, is not intended as financial advice, and is not meant to suggest that a particular loan product or financial strategy is suitable for you. If you’re unsure about a particular financial decision, such as obtaining a personal loan or other loan product, you may wish to obtain advice from a qualified professional.
1 - Pre-approval is based on information submitted in your MogoAccount application and/or other information that indicates you could meet our underwriting requirements. Your pre-approval for credit remains subject to our credit approval process which includes but is not limited to income and identity verification and validation of information submitted through the Mogo.ca website. To meet our underwriting requirements further documentation may be requested from you. Minimum income requirements may apply for some products. Approval is not guaranteed and we reserve the right to deny services to you. Final approval is subject to review and verification of income and supporting documents provided.