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3 Reasons Not to Take Out a Personal Loan During the End of 2022

The Ascent 11/24/2022 Maurie Backman
A hiker standing at the top of an open space and admiring the view of the mountains and trees. © Getty Images A hiker standing at the top of an open space and admiring the view of the mountains and trees.

Personal loans are a popular borrowing choice for a few reasons. First, they tend to come with competitive interest rates. Secondly, they tend to close quickly -- sometimes within days of an application. And finally, personal loans allow you to borrow money for any purpose. So they’re much less restrictive than auto loans, which can only be used to finance a vehicle, or mortgages, which are only for home buyers.

But while a personal loan might appeal to you, you may want to steer clear of one over the next several weeks. Here’s why.

1. You want a clean financial slate for the new year

There’s something to be said for starting off a new calendar year with no debt in your name. If you manage to avoid taking out a personal loan during the tail end of 2022 and you don’t have other debts outstanding, you can start off 2023 in a solid financial place.

2. A recession could be coming

For months, financial experts have been telling consumers to gear up for a recession in 2023. The Federal Reserve is eager to slow the pace of inflation so consumers get the relief they need. To do so, it’s been implementing aggressive interest rate hikes.

The purpose of those hikes is to drive up the cost of borrowing so consumer spending starts to decline. If that happens, it could narrow the gap between supply and demand that caused inflation to surge in the first place. But the fear is that consumer spending will decline a lot. If that happens, it could fuel a recession, and that could mean a big increase in unemployment levels.

That’s why now isn’t a great time to take on more debt. If you lose your job in 2023, paying off debt could prove difficult. And you don’t need to put that stress on yourself.

Also, if recession warnings increase, you may want to spend the early part of 2023 conserving cash and boosting your savings in case layoffs come down the pike. That will be easier to do if you don't have to make monthly loan payments.

3. You’re borrowing for a want, not a need

It’s one thing to take out a personal loan and use it to fix a leaky roof or repair your car’s failing transmission. But it’s another thing to take out a personal loan to pay for a vacation, new electronics, or even holiday purchases.

Although personal loans tend to come with competitive interest rates, at the end of the day, you're still racking up interest. That means whatever you're using your personal loan for is going to cost you more money than it needs to. And so if you're borrowing for a want and not a need, it pays to consider holding off, saving up for the item in question, and then making that purchase.

Taking out a personal loan in the coming weeks is a move you might end up regretting. Consider holding off so you can start 2023 in a more financially comfortable place.

The Ascent's best personal loans for 2022

Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing The Ascent's best personal loans for 2022.

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 Motley Fool has a disclosure policy.

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