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  • Is it a Good Idea to get a Personal Loan?

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  • Getting a personal loan is a good idea if you have a stable income and a good credit score because you will then be offered a low rate of interest. On the contrary, with an unstable job and a low credit score, the interest rate offered to you will be comparatively higher. It is not advisable to apply for a personal loan each time you have a major expense.

    When you should get a personal loan

    You could get a personal loan for various reasons from funding your wedding to paying off existing loans. Banks approve personal loans on the basis of your income and rarely on the basis of the purpose. Here are some of the reasons why you could get a personal loan:

    • Consolidate your debts
    • If you have maxed out all your credit cards, or you have many loans that you wish to pay off, you could get a personal loan. Ideally, you should do this only if your income has increased and your credit score has improved. Otherwise, it could be a bad idea.

    • Refinance your education
    • When it comes to education, personal loans are not the best choice. Education loans come with comparatively lower interest rates and various benefits. However, you could get a personal loan to take care of any expenses that may have cropped up.

    • Renovate your home
    • You could get a personal loan for home improvement. The home renovation could make your home comfortable and bring you the much-needed peace of mind. Moreover, the renovation could add value to your home in case you are looking to sell it in the near future.

    • Pay for your wedding
    • Indian weddings are a considerably expensive affair. You may be tempted to use your credit card for all your purchases but it is best to get a personal loan instead. That way, you can repay the loan eventually.

    • Finance a purchase
    • Let’s say you wish to take a break and go on a solo trip or you wish to buy furniture for your home, you can go ahead and get a personal loan. If you do not have sufficient savings at the moment to fund your purchase, you can make use of a personal loan.

    • Medical emergency
    • If you or your family member needs surgery immediately or was diagnosed with a critical illness, you could get a personal loan to take care of the expenses. While getting a personal loan is always an option, it is best to get a health insurance plan for you and your family so that you are protected from such emergency scenarios.

    When you shouldn’t get a personal loan

    Personal loans are relatively easy to get. You can apply for a personal loan and get the amount disbursed within a week. However, you should make sure that you really need the loan when you apply for it. Here are a few reasons why you shouldn’t get a personal loan:

    • Impulsive decision
    • If you have the option to save up for the expenditure you are planning, it is always best to save up over a period of time and then make the purchase. Instead of paying the EMI with interest, you could save up the same amount every month and buy the item, say, six months down the line.

    • Bad investment
    • If the amount you spend is not going to give any fruitful result, it is a bad investment. The money you borrow, through the personal loan, should add value to something, only then should you get it.

    • Low credit score
    • If your credit score has just taken a hit, it is best not to apply for a personal loan as you may be charged very high interest rates. Also, if you are unable to repay the loan, your credit score will go further down. Thus, repay all your existing loans and then get a new loan if necessary.

    • Unstable job
    • Personal loans are usually offered on your income. If you do not have a stable job, banks are most likely to charge a high rate of interest. So, think wisely before you decide to get a personal loan.

    Personal loan – advantages and disadvantages

    Advantages Disadvantages
    Easy to apply for a personal loan and get it approved High rate of interest
    No security or collateral is required as it is an unsecured loan Requires good credit scores
    Processing time is less Prepayment penalties may be imposed by some banks
    Paperwork is minimal
    You could avail offers from your existing bank
    Multipurpose loans

    Therefore, personal loans have a set of advantages and disadvantages and depend on several factors such as your credit history, the amount you are looking to apply for, your income and so on. While it may be a good idea for you to get a personal loan at this point in time, the same might not be the case later on. So, plan well before you get the loan.

        

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