Personal loans get a bad reputation in some financial circles, but when used strategically, they can genuinely improve your financial position. The key is to borrow for value-generating purposes, not impulse purchases. Here are five smart ways to use a personal loan.
1. Debt consolidation. If you're juggling multiple high-interest debts — store cards, credit cards, micro loans — consolidating them into a single personal loan at a lower rate can save you money and simplify your finances. One payment per month, one interest rate, one end date.
2. Medical emergencies. Unexpected medical bills can derail even the most careful financial plan. A personal loan gives you access to funds quickly, so you can address health needs without depleting your emergency savings or going without treatment.
3. Home improvements that add value. Certain home improvements — a security upgrade, a second bathroom, a reliable geyser replacement — can increase your property's value by more than the cost of the loan. Calculate the return before borrowing.
4. Education and skills development. Investing in a recognised qualification, a professional short course, or a vocational skill that increases your earning potential is one of the highest-return uses of borrowed money. Your future income can service the debt and then some.
5. Starting or growing a small business. If you have a clear business plan and realistic revenue projections, a personal loan can provide seed capital to start a side business or expand an existing one. Be conservative with your projections and ensure the business can service the debt.
What to avoid: Using a personal loan for depreciating assets (the latest smartphone), holidays you can't afford, or to fund ongoing living expenses you can't cover with your income. These uses leave you worse off financially.
Before applying for any loan, use Ndzinga Capital's free loan calculator to understand the total cost of credit. Borrow only what you need, for as short a term as practical, and ensure the monthly instalment fits comfortably within your budget.
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