There are lots of reasons to take out a personal loan and plenty of advantages. Personal loans can be used to pay off credit cards and consolidate your outstanding debt, among other things. And, unlike other forms of financing, unsecured personal loans don’t need to be backed by collateral.
When do you need to go for Personal Loan?
There are many reasons when you can go for personal loan. Let’s take a look at some of the other reasons for personal loans:
1. Consolidate debt:
One of the most common uses and reasons for personal loans is to consolidate debt. Imagine that you have multiple loans or even outstanding credit card debt and they all have varying balances due as well as interest rates. That’s one of the fastest ways to find yourself in financial trouble, which is where personal loans can help.
2. Pay off credit cards:
One of the best advantages to using a personal loan to pay off your credit cards is the lower interest rates. With this, you can reduce the overall time spent repaying your outstanding balance by minimizing the total interest accrued.
3. Renovation of your home:
Whether you want to put on a new roof, install solar panels, remodel your kitchen or add a swimming pool, hot tub, landscaping or hardscaping, a personal loan can help.
4. Other Expenses:
Life is full of uncertainty. You will never realise what is coming your way! So, personal loans can serve as saviour in your life. Example: expenses like wedding expenses, relocation expenses, medical bills, repair for your vehicle etc. can go beyond your estimation. So, applying for personal loan would be the right option in these circumstances.
When you should not go for Personal Loan?
While there are plenty of reasons for personal loans, you should be aware that you will have to pay them back. When you take out a personal loan to pay off credit cards or have the most perfect wedding, you are borrowing money that will need to be repaid. Personal loans are a great way to consolidate debt and make major investments, but just be sure to use them responsibly.
Gambling lies in a somewhat grey area when it comes to ethics. If it is legal in your area, then engaging in it is perhaps not wrong. However, if your compulsions are so strong that you have to take personal loans just to partake in gambling, then it can never be a good idea.
2. Investing in Stock Market:
Investing in stock market is always risky, but still there are people who remain undeterred and make a fortune from their investments. If you are feeling lucky then there is no harm in giving it a shot. However, if you have to take a personal loan for that, then it can easily end badly.
3. Giving a Loan to a Friend:
People often take personal loans on behalf of their friends, when they claim they are not eligible themselves. However, in no circumstances is this a good idea.
A loan comes with a big responsibility, and if you default, or miss payments, it can have repercussions on your credit score. There is no reason to take such a big risk for someone else.
4. Investing in a New Business:
Starting your own business can often be a life changing experience. However, you should avoid taking a personal loan for the investment. This is because there are plenty of better options such as roping in co-investors or angel investors, or choosing asset-based loans, small business loans, etc.
Whenever you have to decide if you should get a loan or not always ask yourself two things- 1) Is the loan absolutely necessary? 2) Is the loan for an appreciating asset (house, for instance). If the answer to any of these two questions is yes then the loan can be a good idea.
Banks Offering Personal Loans in India: