Big decisions in life, like moving to a house, buying a car, or starting your own business, are not easy and require careful planning and investment. In times when we run out of funds to make these decisions, there is always an option to access credit via tools like personal loans. This type of unsecured loan is helpful in various financial emergencies.
A personal loan can also be a stepping stone to achieving a bigger financial goal. To understand the diverse uses of this financial product, look at the seven scenarios where a personal loan can be a lifesaver.
People looking to boost their credit score to borrow a higher amount in the future can opt for a personal loan to fulfil their short-term goals, such as buying a two-wheeler, house repair, etc. Taking a personal loan online or offline helps reduce the credit utilisation ratio, which is the amount of revolving credit you use divided by the total credit available to you. A lower credit utilisation ratio is important for a better credit score.
Despite working for years, you haven’t been able to create an emergency fund that could guard you against unforeseen situations like unexpected travel, sudden financial loss, etc. Instead of waiting for an emergency to happen, one can think of taking a personal loan to build a contingency fund. Meanwhile, repayment of personal loan EMI would help the person build a healthy credit score. Make sure to save the loan amount through liquid instruments.
Debt consolidation is another scenario where a personal loan can be useful for managing finances. If you are paying for multiple loans, compare their EMI rates with those of a personal loan. If you get a personal loan with significantly lower EMI rates than your existing loans, you can take a personal loan and repay other debts.
In case of an unplanned travel due to a family emergency or any other issues, a person running out of cash can consider taking a personal loan. Many people also prefer the option to take one for leisure travel. The personal loan amount can be used to finance airfare, hotel stays, local tours, shopping, fun activities, etc.
It is the festival season, and nearly everything is available on a no-cost EMI option. If you are planning to buy multiple items, such as a double-door refrigerator, air conditioner, LED television, etc., it is better to go for a personal loan instead of buying multiple items on EMIs.
If one of your family members or relatives falls sick or deals with a medical emergency and runs. You can think of taking a personal loan to meet their medical expenses and fund their treatment.
Personal loan can also be considered to fund tasks like home renovation. In many instances, such work gets delayed due to lack of instant cash. Hence, it is better to take out a loan for the task and manage repayment with easy instalments.
While there may be a lot of situations where personal loans can be suitable to address urgent financial needs, people need to keep in mind the following aspects before applying for one:
Ability to repay: Check personal loan calculators to evaluate your ability to repay personal loans based on your income to avoid unnecessary debt.
Compare rates: Personal loan rates vary from bank to bank and from one platform to another. After comparing rates on all platforms, choose the most suitable and reliable personal loan option.
