When to apply for Personal Loan and When not!
Personal Loan – Many of us have seen banks posting an advertisement on instant loans. The key reason for this is to convince customers for easy loans. Personal loans are very easy to borrow. Most often you get e-mail alerts from many banks on the pre-approved loans. Most of the times, people tend to go for personal loans to buy vehicles, to go for long vacations etc. Since, it is too easy to borrow personal loans, you will not realise the cost of the loan. However, it is definite that your cash flow, your investment etc. is going to take a hit as the interest on personal loans are very high.
When to go for a Personal Loan?
- Square off an expensive loan: Let’s assume, you have a credit card outstanding balance which might cost you around 40% p.a plus other service charges. The maximum interest rate on personal loan could be around 15% p.a. This is one of the scenarios where you can opt for personal loan. On the other hand, this is not a good idea to have pending credit card balances that require additional loan to clear those balances.
- Medical Emergencies: Maintaining a health family is one of the key reasons why we earn! So in case of emergencies it is absolutely fine to go for a personal loan. However, it is also a good idea to have sufficient insurance cover for the family health.
When it is not acceptable to borrow a personal loan?
- Going for a vacation: There are many people who plan for a vacation by taking a personal loan. Is it a good idea? Absolutely “NO”.
- Purchasing a Gadget: You could be fond of costly gadgets, but taking a personal loan for that is not a good idea. If you have a plan to purchase a gadget, then you need to plan your savings accordingly.
- Speculative Purpose: Many of us plan to invest in stock market and to earn easy income by speculation. It’s definitely not a bad idea. However, you should be very careful about the risk and the source of money you invest. Yes, taking personal loan to use it for speculative purpose is not at all acceptable.
- Buying a car: If you plan to buy a car or any vehicles, then go for a vehicle loan. Taking personal loan could be very costly and not really worth it.