What do you plan to do if you face a sudden cash crunch? And from where do you plan to seek help if you happen to incur an unanticipated financial loss and are currently down with savings? Or what if you have to buy an expensive gift for your partner or a loved one and do not wish to wait for another six months until you can accumulate enough savings for the same. Besides, in today's anxiety-riddled environment, you may get depressed and want to go on a sojourn to the Himalayas, and guess what? You fall short of funds.
Else, you want to repair your family house that needs repairs and it is not eligible for a home loan. In any of these situations and more, what can you do and where can you get the help from?
Well, at the risk of sounding cliche, we can recommend that you can explore the option of raising a personal loan. Yes – a personal loan.
A personal loan is an unsecured loan offered by a bank or financial institution for a range of purposes which are quite personal in nature and, therefore, do not fall in the broader category i.e., house loan, car loan, business loan, and so on.
Here, we deconstruct the key reasons for raising a personal loan.
1. Home renovation: When you want to fund home improvement projects such as repairs or upgrades, you may have to raise a personal loan.
2. Emergency situations: You may need money to access quick funds in case of unforeseen emergencies such as car repairs, urgent travel, or family emergencies.
3. Large purchases: You might need money to finance major purchases, such as appliances, electronics, or furniture without depleting savings.
4. Wedding expenses: You might need money to cover the costs of wedding or other major life events which involve a large spending.
5. Higher education: Although you can raise an education loan to meet expenses of higher education such as professional or certificate courses, you can also raise a personal loan if the money happens to fall short.
6. For vacation: Although it is not a very recommended thing to do, you could raise a personal loan to go on a vacation as well, particularly when it is a one-time opportunity and you don’t have the savings on hand.
7. Small investment: You could even take a personal loan to fund a tiny side business, particularly if it doesn't qualify for a business loan.
However, one should be careful about certain things such as high interest rates and fear of falling in a debt trap. As most banks typically charge a high rate of interest in the range of 12-18 percent, loan burden can become too heavy to endure in a few months.
1. Interest rate is affordable: It is advisable to compare the interest rates charged by different banks so that you secure a good deal. It's good to exercise caution before you choose one bank over another.
2. Only once in a while: Another important point to remember is that a personal loan should be taken once in a while. Unless it is absolutely necessary, you should refrain from taking a personal loan. If you start taking a personal loan for every small requirement and need, it won't be long before you have too much of a loan to repay. Warren Buffett famously said once, “If you buy things you do not need, soon you will have to sell things you need.”
“Because of bad spending habits and careless repayment approaches people get badly trapped in debt. Such people have different types of loans such as multiple credit card loans, vehicle loans, loans taken from NBFCs and personal loans. As a result of these loans EMI sometimes becomes 80-90 percent of monthly income. This is quite a dangerous situation and must be avoided at all costs,” says Preeti Zende, a Sebi registered investment advisor and founder of Apna Dhan Financial Services.
3. Avoid further repayment: One point that needs to be remembered is that you should not take further loan to repay the existing loan.
To sum up, we can reiterate that you may be advised to raise a personal loan to meet a range of requirements and needs. However, you should examine its feasibility and affordability before you jump the gun.
