Skip to main content
Advertiser Disclosure
We do receive compensation from some partners whose offers appear on this page. We have not reviewed all available products or offers. Compensation may impact the order in which offers appear on page, but our editorial opinions and ratings are not influenced by compensation.

The Ascent Logo The Ascent Logo - Blue circle with an A in it and the ascent a motley fool company to the right of that

  • Credit Cards
  • Banking
  • Brokerages
  • Loans
  • Mortgages
  • Knowledge
  • Latest Picks
  • Search Icon Click here to search

Credit Cards

Top Picks
  • Best of January 2021
  • Cash Back
  • Balance Transfer
  • Travel
  • 0% APR
  • Rewards
  • Bad Credit
Knowledge
  • Beginners Guide to Credit Cards
  • How to Rebuild Your Credit
  • Maximize Your Credit Card Rewards
  • Learn More About Credit Cards
Credit Card Tools
  • Compare Cards
Looking for a new credit card?

Explore the best credit cards in every category as of January 2021.

Get started!

Banking

Top Picks
  • Best Savings Accounts
  • Best Bank Accounts
  • Best Money Market Accounts
  • Best CDs
  • Best Checking Account Bonuses
Knowledge
  • Beginners Guide to Banking
  • Everything You Need to Know About Savings
  • Money Market Accounts Made Easy
  • Learn More About Banking
Looking for a place to park your cash?

Check out our top picks of the best online savings accounts for January 2021.

Get Started!

Brokerages

Top Picks
  • Best Brokers of January 2021
  • Best Online Brokers for Beginners
  • Best Options Brokers
  • Best IRA Accounts
  • Best Roth IRA Accounts
  • Best Robo Advisors
Knowledge
  • How to Open a Brokerage Account
  • Beginner's Guide to Brokerages
  • Learn More About Brokerage
Just getting started?

Explore our picks of the best brokerage accounts for beginners for January 2021.

Get Started!

Loans

Top Picks
  • Best Loans of January 2021
  • Best Personal Loans for Bad Credit
  • Best Loans for Debt Consolidation
  • Best Low-Interest Personal Loans
  • Best Personal Loans for Good Credit
  • Best Personal Loans for Fair Credit
Knowledge
  • Personal Loans Made Easy
  • Debt Consolidation Guide
  • How to Pay Off Debt
  • Learn More About Loans
Thinking about taking out a loan?

Before you apply for a personal loan, here's what you need to know.

Get Started!

Mortgages

Top Picks
  • Best Mortgage Lenders of January 2021
  • Best Mortgage Lenders for Poor Credit
  • Best Refinance Lenders
  • Best VA Mortgage Lenders
Knowledge
  • First Time Homebuyers Guide
  • Home Loans Made Easy
  • The Complete Guide to Refinancing
  • How to Get a Mortgage with Bad Credit
  • Learn More About Mortgages
Tools & Calculators
  • Mortgage Calculator
Compare Rates
  • Today's Mortgage Rates
  • Refinance Rates
  • 15-Year Mortgage Rates
  • 20-Year Mortgage Rates
  • 30-Year Mortgage Rates
  • Jumbo Mortgage Rates
  • VA Loan Rates
  • 5/1 ARM Rates
  • 7/1 ARM Rates
  • FHA Mortgage Rates

Knowledge

Knowledge Section
  • All Articles
  • Credit Card Articles
  • Banking Articles
  • Brokerage Articles
  • Personal Loan Articles
  • Mortgage Articles
  • Personal Finance Articles
Recent Articles
  • This Is the Most Popular Mortgage Lender in the U.S.

    Mortgages

    This Is the Most Popular Mortgage Lender in the U.S.
  • You Can Now Earn $250 Back With This No-Annual-Fee Business Credit Card

    Credit Cards

    You Can Now Earn $250 Back With This No-Annual-Fee Business Credit Card
  • The Amex Platinum's New Perks Make It One of the Most Valuable Cards for People Stuck at Home

    Credit Cards

    The Amex Platinum's New Perks Make It One of the Most Valuable Cards for People Stuck at Home
  • Why You May Not Get Approved for a Discover Card -- Even With an 800 Credit Score

    Credit Cards

    Why You May Not Get Approved for a Discover Card -- Even With an 800 Credit Score
  • The Ascent
  • Knowledge
  • Loans

Is Taking Out That Personal Loan a Big Mistake?

by Christy Bieber | Dec. 12, 2019

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

Taking out a personal loan is often -- but not always -- a good idea. Watch out for these red flags when deciding if borrowing makes sense for you. 

Personal loans are often a good form of financing. They are unsecured, so you aren't putting assets at risk as collateral, and the interest rate tends to be lower than a credit card. Personal loans are also flexible because you can use the money you borrow for anything you want, including consolidating other debt.

But just because personal loans can be helpful, that doesn't mean it's always a good idea to take one out. In fact, in some circumstances, getting a personal loan could be a big mistake. This could be the case for you if any of the following things are true. 

A worried-looking man looking at a laptop in a cafe.

Image source: Getty Images

1. You can't afford the monthly payments

When you take out a personal loan, your monthly payments are determined based on the amount borrowed, the loan term, and your interest rate. If there is even a small chance you won't be able to afford the monthly payments for a loan you're considering, you absolutely shouldn't borrow.

Taking on a debt you aren't sure you can pay off is a recipe for disaster. If you pay late or don't pay at all, you could end up damaging your credit and incurring late payment fees. If you fail to pay back your loan, you could also find yourself in court if the lender sues to collect -- and this lawsuit could lead to wage garnishment or other dire consequences. 

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

Be sure you understand up front how much your personal loan payment will be, whether it might change, and how it will fit into your budget. If you have too little income and don't think you can pay the bill on time each month, walk away from the loan.

2. You're borrowing for a non-essential purpose

There is never a reason to borrow money for things you want but don't really need. If you borrow, you'll have to pay interest, which makes the purchase more expensive in the long run. The debt payments will also make it more difficult to live within your means.

While lenders market personal loans as the perfect way to pay for vacations, home upgrades, weddings, and big purchases, you should avoid taking on debt for any of these things. Instead, wait until you've saved up the cash to cover the costs and don't commit to years of payments for something that won't improve your financial situation over the long term.

3. You're borrowing to pay off debt but don't have your spending under control

Debt consolidation is a popular reason for taking out a personal loan and it can be a good one. If you owe a lot of high interest debt and you can take out a loan at a lower rate to pay it off, this may seem like a no-brainer. 

Unfortunately, if you borrow to repay your debt but don't have your spending under control, you risk ending up in a worse financial position. If you use the personal loan to pay off your credit cards but then end up charging them up again, you'll have both the loan and credit card bills to pay.

To make sure this doesn't happen, create a budget and live on it for a little bit. That way you'll know you won't reach for the credit cards you've just paid off with borrowed funds from a personal loan.

4. You're borrowing from a lender offering bad terms

While personal loans generally have reasonable interest rates that are lower than credit cards, this isn't always the case. Some loans that cater to bad credit borrowers can be very expensive. And some lenders market loans as personal loans when they're essentially just payday loans by another name. 

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

Make sure you know the interest rate, fees, repayment timeline, and monthly payment before you agree to any personal loan. If the rate is high, or you’ll be stuck paying the loan for a very long time, or there are exorbitant fees, it’s better not to borrow. 

Don't end up making a big mistake when it comes to taking out a personal loan

If you can't find a loan at a reasonable rate, if you're borrowing for something you don't really need, or if there's a chance you can't afford the monthly payments, you should absolutely not take out a personal loan. Doing so would be a major mistake that could ruin your credit, cost you a fortune, and undermine your financial security for a long time to come. 

Our Picks of the Best Personal Loans for 2021

We've vetted the market to bring you our shortlist of the best personal loan providers. Whether you're looking to pay off debt faster by slashing your interest rate or needing some extra money to tackle a big purchase, these best-in-class picks can help you reach your financial goals. Click here to get the full rundown on our top picks.

About the Author

Christy Bieber
Christy Bieber icon-button-linkedin-2x

Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.

Share This Page
Blue Facebook Icon Share this website with Facebook
Blue Twitter Icon Share this website with Twitter
Blue LinkedIn Icon Share this website with LinkedIn
Blue Mail Icon Share this website by email

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

Featured Offer

Logo for Upstart loans

1K-50K - Min. 580 Credit Score

Check Rate

Related Articles

Man holding cash image for Best Personal Loans for 2021

Best Personal Loans for 2021

Girl holding credit card image for Balance Transfer vs. Personal Loan: Which Should I Choose?

Balance Transfer vs. Personal Loan: Which Should I Choose?

cap one image for 3 Times When You Should Take Out a Personal Loan

3 Times When You Should Take Out a Personal Loan

Man sitting at a desk celebrating with a fist pump image for How to Get Approved for a Personal Loan

How to Get Approved for a Personal Loan

Featured Articles

Best Personal Loans for 2021

Balance Transfer vs. Personal Loan: Which Should I Choose?

3 Times When You Should Take Out a Personal Loan

How to Get Approved for a Personal Loan


We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

The Ascent Logo

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.

btn_facebook-yellow btn_twitter-yellow btn_instagram-yellow

Copyright © 2018 - 2021 The Ascent. All rights reserved.

About The Ascent
About Us Contact Us Newsroom How We Make Money Editorial Integrity Ratings Methodology
Legal
Terms of Use Privacy Policy Accessibility Policy Terms and Conditions Copyright, Trademark and Patent Information
Learn
Credit Cards Banking Brokerage Loans Recent Articles

By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

Back to The Motley Fool