Should you take out a loan? | Upwise


When does it make sense to take out a loan?

Follow these three steps to help you figure out if taking out a loan makes emotional and financial sense for you.

Sylvie Tremblay


It’s no secret that taking out a loan can double as an investment in your future. After all, many people use student loans to help fund their education and mortgages to help buy their first home (some might think of this as good debt).  

But what about other types of loans? Taking out a loan to buy that new laptop or fund your dream home renovation could be an investment that propels you toward your goals—or it could become just another bill you dread paying.  

Deciding whether you’re ready to take out a loan means focusing on your short- and long-term financial goals, how a loan may help you get there, as well as how easily loan payments fit into your budget. The following three steps can help you sort through your emotions and figure out whether taking out a loan makes sense for you.  

Evaluate your emotions 

Emotions are a crucial part of money management, including your decision to take on debt.  

“Taking out a loan for something you really want can be very exciting, but there will probably be some underlying anxiety due to taking a risk or fearing the unknown," says Kendall Phillips, a Licensed Professional Counselor at CRM Counseling in Ontario, Canada. "It is always beneficial to acknowledge and work through these emotions, since it gives you the ability to feel in control of your decisions.” 

Using the SHREWD method is one way to help you determine the "emotional cost" of the loan and reflect on how you might feel if or when the potential after-purchase glow wears off. Start by asking yourself the following questions: 

  • Is it a Sincere want or need?   
  • Will you be Happy to pay when the bills are due?  
  • Is there Room in your budget?  
  • Is it worth the Extra cost, including interest?  
  • What if you Wait? Will it cost more in the future?  
  • Will you be Disciplined enough to pay it back?   

Do the math 

While working through your emotions can help you separate lukewarm wants from fulfilling and necessary purchases, crunching the numbers can tell you if taking out a loan makes good financial sense.  

Doing a cost-benefit analysis—taking an in-depth look at the true cost and affordability of the loan compared to the benefits it will provide you—can help decide if a loan is truly worth it. By making your decisions based on data, you can feel confident in your choice, whether you opt to take out a loan or not. Follow these three steps:  

1. Calculate your benefits: What is the value you'll gain from a loan, financially and emotionally? Consider whether it saves you money in the long run, helps you achieve your financial goals, and/or has a lasting positive emotional impact. 

2. Calculate the costs: Compare interest rates and quotes from multiple lenders to learn the true cost of the loan, including interest and fees. Review the monthly payment, how long you'll need to pay, and how well it fits into your budget. Consider emotional costs, too, including any anxiety you might feel.  

3. Compare the costs and benefits: Weigh the value of what you'll gain from a loan compared to how much you'll pay. A monthly payment that eats into essential parts of your budget or won't help you reach your goals may not feel worth it in the end. On the other hand, a loan that fits into your budget and has a significant emotional payoff may be a sound investment in your future.   

Reach out for help 

Deciding whether you’re ready for a loan doesn’t have to be a solo effort.  

Phillips recommends asking friends and family about their personal experiences with loans and chatting with loved ones who will be forthright and fair. “Talk to that best friend who can give you hard truths better than others, or a mentor or close relative who is compassionate but willing to be transparent,” she advises. A financial expert can also help you weigh your options, craft a custom plan, and adjust your budget if you decide to take out a loan, she notes.  

No matter what you ultimately choose, taking the time to work through your emotions and crunching the numbers can make you feel more confident in your financial choices.  

We’re here to help. Upwise enables you to set a budget, monitor your spending, and track your loan repayment, so you can make financial decisions that free up money for what matters most to you.


Go to the Upwise app

Download the app to see how Upwise can help you make financial progress you can see and feel. 

You’re one click away from building better money habits. Download the app