4 Questions to Ask Before Getting a Personal Loan in 2023

It pays to run through these before submitting your application.

There's a reason so many consumers find personal loans appealing. These loans let you borrow money for any purpose, and they often come with lower interest rates than other means of borrowing.

You may be thinking of getting a personal loan once the new year kicks in. But here are four questions you'll definitely want to address first.

1. Am I borrowing for a need, or for a want?

If you have a stove that barely works and kitchen cabinets that are pretty much about to cave in, then it's easy to argue that a kitchen renovation is a need. And a personal loan could be a good way to finance one. 

But generally speaking, if you're going to take on debt at a time when interest rates are up across the board (which is the case right now), then you should really limit yourself to situations where you're addressing a need. You should probably hold off on getting a personal loan to take a vacation or replace a still-decent furniture set with a newer one.

2. Is my credit score in good shape?

Personal loans are unsecured. This means they're not backed by a specific asset (whereas a mortgage, for example, is a secured loan, and the home being financed serves as collateral for it). Because of this, it's important to have great credit at the time of your personal loan application. The higher your score, the more likely you are to qualify for a competitive interest rate.

If you don't know what your credit score looks like, access it before applying for a personal loan. If you see that it could use a lift, you may want to hold off on that loan and boost it first.

3. Have I explored other borrowing options?

Personal loans can be quite cost-effective from an interest rate standpoint. But a personal loan may not be your cheapest borrowing option. If you own a home, for example, borrowing against its equity could leave you paying less interest on the sum you borrow. So it's a good idea to explore different options and crunch some numbers before deciding that a personal loan is your best bet.

4. Is this the only loan I'll need this year?

You may have no plans to borrow money in 2023 other than to get a personal loan. But if you're applying for a large loan, like a mortgage, then you may want to submit that application first. 

Owing money on a personal loan could make it harder to qualify to borrow for a home, since mortgage lenders look at your outstanding debt relative to your income when making that determination. So you're better off having less debt before your mortgage application, and if anything, getting a personal loan once you've closed on your mortgage.

Getting a personal loan may not be a bad idea in 2023, especially if you're taking one out to address an issue that directly affects your quality of life. But it definitely makes sense to answer these questions before putting in an application.