Personal Loan: Top 7 Reasons to Consider When Life Throws You a Curve Ball

What do you plan to do if you face a sudden cash crunch? And where do you plan to seek help from if you happen to incur an unforeseen financial loss and are currently low on savings? Or, if you have to buy an expensive gift for your partner or loved one and you don’t want to wait another six months until you can accumulate enough savings for the same. Plus, in today’s anxiety-filled environment, you might get depressed and want to do a Himalayan staycation, and guess what? You run out of funds.

Otherwise, you want to fix your family home that needs repairs and it is not eligible for a home loan. In any of these situations and others, what can you do and where can you get help?

Well, at the risk of sounding cliché, we may recommend that you explore the option of obtaining a personal loan. Yes – a personal loan.

A personal loan is an unsecured loan offered by a bank or financial institution for a number of purposes that are quite personal in nature and therefore do not fall into the broader category i.e. home loan, car loan, loan commercial and so on. .

Here, we deconstruct the main reasons for obtaining a personal loan.

These are the main reasons to get a personal loan:

1. Home Renovation: When you want to finance home improvement projects like repairs or upgrades, you may need to get a personal loan.

2. Emergency situations: You may need cash to access quick funds in case of unforeseen emergencies, such as car repairs, urgent travel, or family emergencies.

3. Large purchases: You may need money to finance major purchases, such as appliances, electronics or furniture, without depleting your savings.

4. Wedding Expenses: You may need money to cover the costs of your wedding or other major life events that involve large expenses.

5. Higher education: While you can get an education loan to cover higher education expenses like professional courses or certificates, you can also get a personal loan if you have insufficient money.

6. For holidays: Although it’s not a highly recommended thing, you can also get a personal loan to go on vacation, especially when it’s a unique opportunity and you don’t have your savings on hand.

7. Small investment: You can even take out a personal loan to finance a small side business, especially if it doesn’t qualify for a business loan.

However, one should be careful about certain things like high interest rates and fear of falling into a debt trap. Since most banks typically charge a high interest rate, in the range of 12 to 18 percent, loan burdens can become too heavy to bear within a few months.

Before taking out a personal loan, note the following points:

1. The interest rate is affordable: It is advisable to compare the interest rates charged by different banks to ensure you get a good deal. It’s good to be cautious before choosing one bank over another.

2. Just every now and then: Another important point to remember is that a personal loan should be taken out from time to time. Unless absolutely necessary, you should avoid taking out a personal loan. If you start taking a personal loan for every little requirement and need, it won’t be long before you have a very large loan to pay off. Warren Buffett once said, “If you buy things you don’t need, you will soon have to sell the things you do.”

“Due to poor spending habits and careless approaches to repayment, people become seriously trapped in debt. These people have different types of loans like multiple credit card loans, vehicle loans, loans taken from NBFCs and personal loans. As a result of these loans, the EMI sometimes accounts for 80-90 percent of the monthly income. This is a very dangerous situation and should be avoided at all costs,” says Preeti Zende, Sebi-registered investment consultant and founder of Apna Dhan Financial Services.

3. Avoid additional refunds: One point that needs to be remembered is that you should not take more loans to pay off the existing loan.

In summary, we can reiterate that you may be advised to take out a personal loan to meet a range of requirements and needs. However, you should examine its feasibility and affordability before taking a shot.