Is a personal loan right for me in 2024? 3 tips to help with borrowing money

If you have a major expense to tackle such as a home renovation, a car or even a wedding, a loan from the bank can help.

This type of loan is called a personal loan and typically asks the borrower to pay back the money with interest between one and seven years. 

This sounds easy enough but what’s often forgotten about is planning your budget to include this new financial commitment. This means considering the length of time of the loan, the impacts of either a fixed or variable interest rate on repayments, and whether you’re choosing a loan that’s secured against another personal asset or if it’s unsecured. 

So there are a number of factors to consider. But above all else it’s knowing how to organise your finances ahead of borrowing the money. So let’s take a look at some smart ways to cut down on expenses and save a bit extra in order to make your personal loan easier to manage. 

1. Find quick wins to improve your spending

No matter your personal finance obligations, it’s a good idea to track your spending if you don’t already. Start by going through your bank or credit card statements for the last couple of months. 

Ask yourself if you need all of the services or items you’re paying for? Possibly not. 

Look for anything that isn't essential, which could be things like subscriptions or memberships you don't use much. Sometimes phone apps charge you ongoing fees too. These can be easy expenses to cut back on.

2. Preparation is a smart way to handle everyday expenses

In other words, a little weekly household planning can reduce the chance of overspending.

For example you might:

• make a shopping list and only buy what you need.
• prepare your meals or ingredients in advance. 
• shop online but only log on with a list so you can see what you're spending as you go. 
• compare energy suppliers to get the best deal.
• review your internet service and usage over a 12-month period to find a plan that suits your needs. 

3. Think about making small savings changes

Small changes can make a big difference to the way you save money, notes the government’s Moneysmart site. 

It’s true - here are some very simple tactics you can start with:

• Start saving right away. The sooner you start, the more you'll earn in interest and the sooner you'll reach your goal.

• Avoid spending: The challenge with saving money is the obvious temptation to spend what you're piling up. So why not put some checks in place such as savings goals or targets to help you stay on track.

• Automate your savings. Set up a direct deposit so part of your pay goes straight into your savings account.

• Put some money aside for unexpected costs. You'll be glad to have some money stashed for a rainy day.

• If you want to try to cut back, you might try using cash instead of cards. For some, it can be harder to part with physical money than the digital variety.

• You might also use budget apps to track your spending more easily.

Paying off your personal loan

Now it’s time to focus on your personal loan repayments. First, make sure you have enough in your bank account to make repayments when they're due. If you don't, you'll usually be charged a missed payment fee.

Second, use your budget or a basic money schedule to stay on top of loan repayments. (You can also factor in extra repayments to help pay off the loan faster).

Thirdly, check if there's an early repayment fee (or even an exit fee) before doing anything else. In fact, checking for fees is a good rule of thumb when using any financial product. 

Finally, be sure to do all the checks and comparisons you can to find the one the personal loan that suits you most. You can start right here by comparing some of the top personal loans on the market, as selected by our Mozo experts.