Unlike mortgages or student loans, personal loans make it easy to borrow money. You can usually apply online and, if approved, receive a lump sum of cash within one day. Because of how convenient and quick they are, personal loans can be useful tools for consolidating debt, financing a major purchase, or covering a medical bill.

However, taking out a personal loan is a big decision. If you're not careful, personal loans can worsen your financial situation and make it difficult to get out of debt.

Personal loans can be beneficial, but you need to have a plan in place. To make sure you're prepared and can handle the loan, ask yourself the following questions before submitting your loan application.

You've likely heard the terms "good debt" or "bad debt" before. While definitions vary, in general, good debt refers to borrowed money that leads to a better financial future. Loans that help you boost your income or purchase a valuable asset fall into the "good debt" category; loans that are used for unnecessary purchases are "bad" debt.

Personal loans that you use strategically can be good debt. For example, using a personal loan to consolidate high-interest credit card balances can help you save money and get out of debt faster. Or, if you use the loan to finance a medical procedure not covered by insurance (for example, paying for a CPAP machine or weight loss surgery), the loan can help improve your quality of life.

By contrast, using the loan for splurges like a vacation or shiny new appliances is riskier. These are unnecessary purchases, and going into debt for items that aren't a necessity can make it difficult to get your finances in order.

Personal loan lenders often offer loans of $1,000 to $100,000. While it can be tempting to borrow the maximum allowed, keep in mind that a higher loan balance means higher monthly payments and more interest.

Calculate exactly how much you need and borrow only that. For example, if you're consolidating debt, look up your credit card statements and total all your balances to determine how much you need to borrow with a personal loan. Or, get several estimates for a kitchen remodel to get a better idea of how much the project will cost.

Borrowing only what you strictly need will help prevent unnecessary strain on your budget.

Read more: How much can I get with a personal loan?

Although personal loans usually have lower annual percentage rates (APRs) than credit cards, rates vary by lender and based on your creditworthiness.

Currently, personal loan rates range from about 6.5% to 35.99%. But, if you have less-than-stellar credit, you may only qualify for a loan with double-digit interest rates, making it more expensive to borrow money — and making a personal loan a less attractive option.

Although personal loans are simple and easy to apply for, they may not be the best choice. Before committing to a loan, consider these alternatives:

• If you want to fund a major purchase: Before taking out a loan for new appliances, electronics, or furniture, consider postponing the purchase until you can save up enough money to pay for the transaction in cash. While it may take longer, you'll eliminate interest.

• If you want to consolidate debt: Instead of a debt consolidation loan, consider a balance transfer credit card that offers 0% interest for a predetermined amount of time. If your debt feels out of control, working with a nonprofit credit counselor might be useful.

• If you need an emergency home repair: If you need to replace a hot water heater or fix a leaky roof, ask about payment plans. Some companies will allow you to pay in installments or use buy now, pay later platforms to finance the cost without interest.

A personal loan may be the best option in some cases. But it's worth exploring other options to ensure you make an informed choice.

Taking out a new loan increases your monthly debt payments and impacts your credit score. As a result, taking out a loan can affect your finances in the following ways:

• You'll have less cash for discretionary spending: With a fixed monthly loan payment, a larger portion of your budget will go to debt repayment, leaving you with less cash for travel, dining out, or entertainment.

• You may not be able to contribute as much to retirement: Since you'll have less cash available, it may impact your contributions to your retirement account, and you'll lose out on compound growth.

• You may not qualify for other loans: By taking out a personal loan, you'll have a higher debt-to-income ratio (DTI), a key factor lenders look at when considering your eligibility. If you plan on applying for a car loan or mortgage in the near future, a new personal loan could hurt your chances.

There's no one right approach for everyone. But taking out a personal loan involves trade-offs, so you'll have to decide which path forward is best.

Related: Do you know your monthly cash flow? Here's how to calculate it.

Although personal loans are usually unsecured, that doesn't mean there aren't consequences to missing your payments. Late or missed payments can cause you to rack up late fees, and your credit score will plummet. If you can't afford your payments long-term, your account could even end up in collections.

Only proceed with a personal loan if the monthly payments fit comfortably within your budget. Ideally, you'll have some cushion in your monthly budget to allow for any unexpected emergencies that may occur.

Personal loans are issued based on your credit and income, among other factors. If you don't meet a lender's minimum requirements, you may not qualify for a loan — or you may only qualify for a loan with a high rate. If that's the case, you may need a co-signer or co-borrower.

While a co-signer can help your chances of getting a loan at a competitive rate, there's a catch: If you miss your payments, the lender will pursue repayment from the co-borrower, and any late payments will negatively affect their credit too. It's a big favor to ask of someone, so be sure you can afford the loan and have a solid repayment plan in place.

You've asked yourself the big questions and decided a personal loan makes sense for your needs. When comparing your options, keep these key differentiators in mind:

• Interest rates: Rates can vary significantly by lender, so it's smart to shop around and get quotes from several lenders that offer rate estimates with soft credit checks (which don't affect your credit score).

• Fees: Some lenders charge origination fees of up to 10%, which can add to your overall loan cost, and most charge high late fees if you miss a payment. Review the loan agreement before signing to make sure you understand all of the costs involved.

• Repayment terms: Personal loans usually have terms of two to seven years. A longer loan term can be appealing because you'll have a smaller monthly payment, but you'll pay more in interest over the life of the loan.

• Disbursement times: While some loans will disburse your funds electronically in as little as one day, others can take longer. If you need money quickly — for example, to pay for a pet's medical procedure or replace a broken refrigerator — look for a lender with quick approvals and disbursement times.

Personal loans are convenient, flexible, and fast, but you should use them with caution. It's easy to rack up debt if you take out loans without having a repayment plan in place, so create a budget and borrow the minimum to support your bigger financial picture.

This article was edited by Alicia Hahn.