When you are going through a cash crunch, a short-term personal loan can often be a life-saver. Although personal loans are meant to help individuals who don’t have any other option for meeting their urgent financial requirements, they are not the only one to benefit from them. The lenders also earn a sizeable income from the interest collected on these loans.
This is the reason why they often launch promotional campaigns to attract potential borrowers through lower interest rates and perks, etc. Many even offer “pre-approved” loans to their customers. However, this doesn’t mean that you should take a personal loan even when you don’t really need it or if you can avoid it.
You should always evaluate your needs before you sign on the dotted line.
It’s not easy to secure a seat in the top MBA or engineering colleges in India, let alone abroad. However, if you do manage to get one, you may face another problem—financing. Good education doesn’t come cheap, after all. So, if you qualify for a personal loan, then there is no harm in borrowing it to finance the tuition fee. However, you may still look into standard education loans which often come at low interest rates and offer perks like moratorium period and lenient repayment structure. These can be better than a
You can’t put a price on health and wellness. Thus, if you need money for medical expenses, then a loan is totally justified. However, before you apply, do enquire about the time it would take for the funds to be deposited in your bank account. This is especially important if there is a medical emergency and you need the money on an urgent basis.
If you have more than a few credit cards which have collected a lot of debt, then it can harm you in two ways: By damaging your CIBIL score, and by further increasing the debt (as the debt continues to accumulate interest). However, an appropriate loan can solve this problem easily.
You can take a single big loan to clear the debt on all the cards. So, you are left with just one loan to deal with which not only saves money but also makes repayment easier.
Bad reasons for personal loans
There are many situations in which it is advised to avoid any kind of loan. For instance, if you want to start a new business, then it is best to take money from friends or family rather than a personal loan or some other loan. You can also try to raise the funds through venture capitalists if your business plan is big and attractive to investors.
You should never take a loan on behalf of someone else, and neither should you become a loan guarantor for someone you don’t trust 100%. Loans for investment in stock markets are also never recommended. These situations involve a high level of risk which can lead to big problems later.
As mentioned earlier, when it comes to personal loans, you should always focus on need rather than eligibility.
Even if your bank is offering a loan at a low interest rate, you must not give in to the temptation and use your discretion
to decide whether you really need a loan or not.
Source: Tax Guru