Sandesh: Hey Kapil, it’s been a while, I need your advice regarding a personal finance requirement. My marriage has been fixed, but it is being proposed to be held quite soon. With such short notice, I am falling short of funds to meet some immediate expenses and I really do not wish to borrow it from any relative.
Kapil: In that case, you should opt for a personal loan. It is a perfect option when you are short of time and funds.
Sandesh: Yes, but what about the interest rates? Is it not higher than other types of loans?
Kapil: It depends on the what type of loan you are seeking and a myriad of other factors such as your credit score. Although, it can also be an unsecured loan, and you do not have to worry about hypothecation. Additionally, you will get a lump sum amount upfront at a much lesser time.
We can all relate to Sandesh’s case as mentioned above. Such instances are quite common in our lives. Lack of liquid funds when you need it the most is a huge cause of concern. Sometimes, the requirement is so urgent that you do not have time to liquidate your personal assets. In such scenarios, it is advisable to take a personal loan.
Today, a personal loan comes with many attractive options, with interest rates varying as per the chosen lender and your credit history. Many financial institutions today offer these types of loan, with different terms and conditions. The interest rate might be either floating or fixed, depending on the nature of the loan.
If you are still wondering whether or not to opt for a personal, you should consider the host of benefits it has to offer. Here, we will look at some of them –
Suitable for emergency expenses
Emergencies do not come with a warning. You may need funds urgently for a number of reasons such as meeting a medical expense. In such cases, a personal loan comes handy. Some lenders disburse the loan amount in as low as 24 hours, making the process quick and hassle-free.
Better than opting for a credit card
Although the arrangement for both personal loan and credit card is quite similar, there are some stark differences you need to consider. For a larger amount, a personal loan is preferable as you will be getting a bulk amount in hand, which you need to repay over periodic instalments within a defined time frame. Hence, the interest rates will be lower than a credit card.
However, borrowers should bear in mind that a credit card is suitable in a different scenario, wherein you need ongoing credit facility for meeting various expenses.
You do not have a security
Some personal loans are unsecured in nature, hence, you need not worry about keeping an asset such as jewellery or property as collateral. So,if you do not have security or not wish to put a lien on it, definitely go for this type of loan. The lender will consider other aspects such as monthly income and credit score.
With a personal loan, you can immediately arrange for funds and pay your medical expenses. It is particularly helpful when you do not have medical insurance in hand. The easy disbursal process makes it possible to meet these expenses.
Pay for bigger events
A major event in life such as a wedding, buying a car, or renovating your house may require a high amount of expenses, which may not be available with you. Even if you have opted for an education loan for your child to meet his/her tuition fees, you might need excess funds for air travel, hostel fees, food and other contingencies. A personal loan can help you meet all the expenses, which can not be covered under the ambit of other loans.
Can be used for multiple reasons
Unlike other loans, a personal loan can be used for multiple reasons, including infusing an additional amount of money for meeting business expenses, paying off other loans, or even debt consolidating. Some even choose to pay off their credit card liabilities through a personal loan.
You can use this loan to make festive purchases like buying gifts and décor items for Diwali or to buy a laptop or a desktop for your work from the home set-up. It can also help you pay the fee for your skill-up-gradation course. In the wake of the pandemic, if you are considering either buying or boosting your medical insurance plan, all you need to do is take a personal loan. It can help you meet all these requirements easily.
Improve your credit score
Surprisingly, this is an underestimated use of a personal loan. The credit score improves with your ability to diligently repay the loan. When you take a loan of a small amount and repay it within the given timeframe, it gives a much-needed boost to your credit score.
A better option than borrowing from friends and relatives
Although the personal loan interest rate is higher, opting for a personal loan is better than borrowing from friends and relatives, even if it is interest-free. Moreover, asking for money from your closed ones may put you in an awkward position. It can even put relationships at stake. In such times, a personal loan will come to your rescue.
A personal loan is definitely a good idea in certain conditions, especially when you are in financial distress. The best part about this loan is that it serves a plethora of purposes, making it popular among borrowers. Needless to say, availing a personal loan has become much easier now. Hence, it is advisable to make a careful analysis of lenders based on your requirements.
However, bear in mind to keep a repayment plan in place as the interest amount is huge and default may attract heavy penalties. Make an informed decision and plan your finances accordingly. Ensure that you compare the interest rates and tenure and choose a type of loan that is suitable for you. Additionally, as processing charges differ as per the lender, make sure you do your homework in this regard. Apart from a few exceptions, the interest rate on personal loan are not tax-deductible.