Don’t get a personal loan for the wrong reasons.

Personal loans are often a good way to borrow. You can use the loaned money for anything you’d like, and the loans come with a fixed repayment schedule, so you’ll know the costs of borrowing up front as well as the payoff date. The interest rate is also usually well below what you would pay on a credit card (unless you qualify for a special promotional rate).

But that doesn’t mean it’s always a good idea to get a personal loan. In fact, there are plenty of circumstances in which it doesn’t make sense to take on this type of debt. Here are three of the worst reasons to take out a personal loan.

1. Because you don’t have your spending under control

If you are trying to live well beyond your means, a personal loan can, theoretically, provide you with the cash to do it.

But you’ll be digging yourself into a deep hole that could be hard to get out of unless or until you master budgeting. You’ll also make all your purchases costlier by paying interest on them — which means you’ll have to reduce your living standard further in the future to live within your means as some of your cash goes to your creditors.

The Ascent's picks of the best personal loans

The Ascent’s picks of the best personal loans

Looking for a personal loan but don’t know where to start? The Ascent’s picks of the best personal loans help you demystify the offers out there so you can pick the best one for your needs.

See the picks

If you tend to overspend, borrowing isn’t the right tactic to fix your situation. Instead, you should make a budget and get serious about living within it.

2. Because you’re making a big purchase you really can’t afford

If you must borrow to buy something you can’t pay for all at once, a personal loan can be a better way to do it than a credit card. It offers the predictability of knowing your total borrowing costs, and you will likely pay a lower interest rate.

But the key word there is must. If the purchase is not truly essential, but is just something you want, borrowing for it is often a bad idea — the interest expense will raise the cost. And your efforts to secure a “want” by taking on debt could interfere with important financial goals.

The best way to buy expensive items you want is to save for them over time so you can pay with cash and not commit to paying a creditor for months or years.

3. Because you don’t want to make a plan for debt repayment

Consolidating or refinancing debt are some of the best reasons to take out a personal loan. When you secure a loan at a lower interest rate than your current debt, you make repayment cheaper. And when you can combine multiple debts into one new personal loan, you also make repayment simpler.

But securing a personal loan to pay off other debt isn’t a real plan for becoming debt-free — it just moves the debt to a new place. Make sure you can pay off the personal loan, understand the total costs of borrowing, and can commit to not getting deeper in the hole once you’ve paid off credit cards with a personal loan.

Make sure a personal loan is the responsible choice

Before you take out a personal loan, consider whether borrowing helps or hurts your long-term financial situation. If you’re borrowing for a true necessity, or to consolidate other debt as part of a solid repayment plan, you’re likely making a good choice. If not, think seriously about whether this move is right for you, or if it’s a decision you’ll come to regret.

The Ascent’s picks for the best debt consolidation loans

Want to pay off debt faster? Check out our shortlist of the best personal loans for debt consolidation and cut your monthly payment with a lower rate.

Pay off debt faster

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