Some people advise against personal loans to avoid falling into debt. However, everything in life revolves around money and sometimes you find yourself in a situation where you’re in dire need of a little extra cash. Instead of borrowing from friends – which we all know can get messy – it’s better to take sole responsibility for your financial situation.
Personal loans are also unsecured loans – which means you don’t need to put up collateral in order to get the money, so you don’t risk losing your house or car if anything goes wrong.
Contrary to popular belief, personal loans are not only meant to rescue you out of money troubles, but it can also be used in many ways to enrich the quality of your life and widen your horizons. Personal loans can serve as a backup plan when an unexpected need for money pops up, and it can also help you to reduce stress and take charge of your life again.
Here are a few ways you can use a personal loan:
Finance a wedding
Whether we like to admit it or not, weddings are a big deal. We always say we want something small and simple, and next thing you know you’re staring down at a guest list of at least 500 people. You cannot compromise on food. You want a good venue. You might even want a live band, or how about that ice sculpture that people will talk about for months. FinPosts reports that weddings in Malaysia on average start at RM 50,000 and only get more expensive.
Although taking a personal loan to help fund your wedding is not the best financial decision, it can be very useful as it can make the payment process more convenient for you. Instead of using five different credit cards for ten different payments – photographer, videographer, caterer, wedding outfits – and raking in multiple interest charges, you can pay everything off with one lump sum, and then just focus on repaying your personal loan.
Having said that, we strongly urge that getting a personal loan for a wedding should be your last resort, and only after you have weighed all the pros and cons. Do you want to buy a house or have kids immediately? Are you already in debt? Do you have a stable job and income that ensures that you won’t have trouble with the repayment? You don’t want to begin the new chapter in your life engulfed in debts. So, plan wisely!
The most beneficial aspect of getting a personal loan would be piecing smaller pieces of payments to one whole payment to ease things – if you have multiple debts. This can help to reduce a great amount of stress as you don’t have to deal with multiple payments and interest charges.
Let’s just say you have two credit card debts, with RM10,000 and RM5,000 balance respectively, and a personal loan of RM50,000. Instead of dealing with monthly payments and high-interest rates, you can take out a personal loan of RM65,000 and settle all your debts – and then you only have to deal with one payment and one interest rate on a monthly basis.
However, this is, of course, assuming that the personal loan interest rate is lower than all the other interest rates combined. Here’s how it can work for you:
|Debts/Loans||Interest rate||Repayment||Duration||Total interest|
|Credit Card A – RM10,000||15% p.a.||RM500||2 years||RM1,579|
|Credit Card B – RM5,000||15% p.a.||RM250||1 year 11 months||RM790|
|Personal Loan – RM50,000||13.09% p.a.||RM1,140||7 years||RM45,760|
Without consolidating your debts with a low-interest rate personal loan, you will be paying RM1,890 every month to pay your debts, and it will take 7 years to clear everything off. Total interest incurred is a whopping RM48,129!
However, here’s how much you will be paying if you consolidate your debts:
|Total debt||Interest rate||Repayment||Duration||Total interest|
|RM65,000||6% p.a.||RM1,098||7 years||RM27,232|
As the data above shows, consolidating your debts will give you a total of RM792 additional in discretionary cash every month, because your monthly payment will drop to RM1,890 as opposed to RM1,098. That means extra cash for you while settling your debt. Before debt consolidation, the amount of interest you pay on your monthly debts are a whopping RM48,129. After consolidating, the total interest you pay amount to RM27,232. That’s 43% in savings!
Although the duration it takes to pay back remains the same – which is seven years – you save over RM20,000 in interest rates!
Invest in a small startup
There are many startups sprouting up today, which is also churning a lot of young, self-made millionaires. Talk to people, pick a startup that’s aligned with your interests and passion, and you might just make a lot of money out of it.
But don’t jump in head first, do your research, get to know the founders, learn about the potential market of the business, understand the plans and the structure of the start-up. Invest in small amounts and diversify, don’t lump everything in one basket.
Buy and rent
One of the best ways to make money is by renting things. Renting is an easy and effective way to make some cash on the side.
Remember when you had to rent a swan float for a pool party? Or when you had to rent an entertainment system for your wedding and it costed a bomb? How about the time you needed a lorry when you wanted to move?
Things like cameras and sound equipment, music studios, rehearsal spaces, cars, etc., are always in demand. You can purchase these things with a personal loan, and then use the rental fees to pay off your loan. When you’re done paying off your loan, go ahead and keep the money all for yourself.
Personal loan is not just to purchase physical items, you can also invest in yourself. Get that MBA that you’ve always wanted to, and then qualify for a raise. PayScale.com reports that the average annual salary for a Bachelor of Business Administration holder is about RM50,000, whereas the average annual pay for someone with a Masters in Business Administration is about RM102,000.
If MBA is not your thing, take that crash course in filmmaking that you’ve been thinking about for the last five years. Take a coding class; coders and programmers are in high demand in today’s tech world. According to Human Resources Online, coders can make up to RM100,000 a year, and the figure increases with experience.
Find out what are some additional skills that are needed in your industry or area of interest, pursue it, and you might just end up doubling your pay. This is effectively the best way to turn a personal loan, which commonly comes with a bad rep, into a good debt that will bring you limitless returns on investment!