If you don’t need the money right away, saving on side earnings might be a better bet than getting a personal loan.
- Personal loans can be an easy way to borrow money when you need it.
- Since personal loan rates have gone up, it might be beneficial to take on a second job and save that money instead.
When you need money fast, a Personal loan could be a great solution. Contrary to mortgages, which can take several weeks to close from the time you apply, personal loans can often be closed within days. And so if you’re in trouble – say, your car needs repairs and you’re stuck at home until that happens – a personal loan could be a good way to have some cash in your poached.
But if you don’t need a personal loan for an urgent matter, it may be a good idea to avoid borrowing money, accepting a side hustle, and save money instead. Here’s why.
Borrowing rates are on the rise
The Federal Reserve is desperate to slow the pace of inflation and provide cash-strapped consumers with much-needed relief. As such, he implemented aggressive interest rate hikes in an effort to make borrowing more expensive.
The logic is that if consumers have to pay more to carry credit card balances or take out loans, they are likely to start spending less. And once that happens, supply chains can catch up with demand, helping to slow inflation.
But because of recent Fed actions, it has become more expensive to take out a personal loan (or any other type of loan, for that matter). If you don’t have an urgent and immediate need for money, it may be best to avoid a personal loan and save the money you need instead.
Since inflation makes the cost of living so high, simply reducing your daily expenses may not help you reach your savings goal at a reasonable enough rate. But that’s where a side hustle could come in.
If you get a second job, you can use all your earnings (minus what you owe in taxes) to save for whatever you need a personal loan for. And that way, you can avoid getting into debt and having to spend extra money on interest.
So, let’s say you want a personal loan to upgrade the furniture in your apartment. It’s reasonable to want to trade in an old futon and rickety table for nicer pieces. But since it’s not an emergency in the way a car repair is, you may find that you’re able to work it through for a few months and save the money you need, thus avoiding a personal loan and the interest charges that come with it.
Be careful when borrowing today
The Federal Reserve is likely not done raising interest rates, and in the latter part of 2022, borrowing could end up being more expensive than consumers expect. As such, it’s a good idea to avoid taking on more debt, and a side hustle might be the way to do it.
Don’t forget that you don’t have to commit to this second gig permanently. But if working one for a few months helps you avoid ending up with a higher-than-usual interest rate on a loan, it’s worth the effort.
The Ascent’s Best Personal Loans for 2022
Our team of independent experts have pored over the fine print to find the select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.