2 Times When a Personal Loan Is a Great Way to Borrow Money

Personal loans are a pretty easy way to borrow money, and they come with some pretty convenient features. Many are unsecured, meaning you guarantee the loan with your promise to repay it (and the interest rate you receive is dependent on your credit score and other factors the lender uses to decide your creditworthiness). The payments are in equal amounts and spread over a set period (often a few years, but many of the best personal lenders will let you choose the term that works best for you).

Personal loans really shine as a means of borrowing in a few situations. Let's take a look at when a personal loan is a good idea -- and a few times when it isn't.

1. You need to consolidate debt

Got high-interest debt, like credit card debt? If you've got good credit, you can likely save yourself some money by turning to a personal loan. As of this writing, the average credit card APR is 24.76%, as reported by Forbes. Meanwhile, if you qualified for the best rate on a debt consolidation loan, you could pay as little as 7.99% APR on it. Plus, using a personal loan this way can simplify your financial life. If you're trying to keep up with multiple credit card payments (and multiple due dates), imagine having to worry about just one personal loan payment and one due date.

If you're considering a debt consolidation loan, make sure to run your numbers to tell if you'll be able to handle your new loan payment. And getting rid of credit card debt this way also requires you to avoid running up your credit card balances again, since this won't close the accounts. You could end up in real trouble if you add more credit card debt on top of your debt consolidation loan.

2. You need to make a big purchase or home repair/renovation

For expensive purchases or anything home-related, you often have other borrowing options besides a personal loan. Retail stores that sell appliances or furniture often have financing deals, but they might not come with the best terms. And you could get a home equity loan or line or credit (HELOC) if you need to fix your roof, pay for a remodel, or otherwise sink money into your home.

But home equity loans and HELOCs are secured loans, meaning if you run into trouble and can't make your payments, you could lose your home. And HELOCs come with variable interest rates. So a personal loan could be a good choice in this situation instead, with the caveat that having a strong credit score means you'll have more loan options -- and more attractive APRs.

When shouldn't you use a personal loan?

Think twice about using a personal loan for:

• A vacation: Not to be a buzzkill, but a vacation isn't a necessity. Consider saving money for a big trip, or booking a less-expensive getaway that you can pay for out of pocket -- may I suggest a good old-fashioned road trip vacation?
• A wedding: If your wedding plans are so grand that you're considering financing the day, I recommend finding ways to cut back -- trim your guest list, book a cheaper venue, or DIY some of your decor. Do you really want to start off married life with a big debt hanging over your head?
• A car: An auto loan will generally offer better rates for a car purchase than a personal loan. These are secured loans, so if you can't pay for the car, the lender can repossess it.
• Everyday expenses: If you need to borrow money to fund your lifestyle, the time to make some changes to your budget and income situation is now. Borrowing money to keep up with everyday bills is not a sustainable situation.
• Paying bills that have cheaper options: If you have medical debt, see if you can get on a payment plan. You might be able to consolidate credit card debt with a 0% APR credit card.

Personal loans are a great way to borrow in a few situations, but they're not right every time. Weigh your options and pick the one that results in the most manageable payments and convenience.