Looking to Sign a Personal Loan? Be Really Careful for This Reason

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It’s not necessarily a great time to be borrowing money. Read on to see why. 

In March, the national unemployment rate was 3.5%, which is comparable to where it was prior to the pandemic. But will the jobless rate remain low for the rest of the year? One financial company thinks not. And that’s why you’ll need to be very careful about borrowing money in the near term.

The jobless rate could tick upward

In a recent report, Vanguard said it foresees the U.S. unemployment rate rising to 4.5%–5% by the end of 2023. Now for context, the jobless rate was three times that high in April of 2020, when the pandemic first took hold and millions of workers lost their jobs practically overnight. But still, that would represent a notable uptick in unemployment. And that’s what makes now a pretty precarious time to be borrowing money.

As such, if you’re thinking of signing a personal loan, or any other loan for that matter, you may want to pause and assess your job and financial situation. First, consider the reason you’re borrowing money. If it’s to address a home repair you’ve been putting off, you may be able to make the case to take out a loan. But if you’re looking to renovate, that may be the sort of thing that can wait.

Next, think about your savings account balance. Do you have money in the bank you could pull from to make your personal loan payments if you were to lose your job? If not, you may want to delay your plans to take out a loan.

Finally, think about your job and industry. If you’re a teacher, your job may be fairly secure even if a recession hits and the unemployment rate ticks upward.

But if you’re a marketing professional for a retail company, it’s a different story. If more people lose their jobs, they’re likely to spend less. That’s the sort of scenario that might impact your company’s finances, leading to cuts. And it’s possible that your job could end up on the chopping block, even if you’re great at it.

It’s not a great time to borrow in general

A potential uptick in unemployment levels isn’t the only reason to think twice before taking out a personal loan today. Another reason is that borrowing rates are higher on the heels of the numerous rate hikes the Federal Reserve has implemented over the past year and change.

Now, one thing you’ll often hear about personal loans is that they can be an affordable way to borrow, especially if you have great credit. But right now, you might get stuck with an interest rate you aren’t happy with, even if your credit is excellent.

All told, there’s a lot of uncertainty when it comes to things like unemployment and a potential 2023 recession. And at a time like this, holding off on borrowing may be your best bet if your need for money isn’t absolutely pressing. Some people may not be able to wait to take out a loan. But if you’re in a different boat, putting off a big home project or purchase could end up being a savvy move if your personal financial situation worsens later on this year.

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