It’s no secret that personal loans are one of the most effective financial instruments available to you. Yet, there are multiple questions surrounding such funding options.
For instance, many people are still unsure about how to get a personal loan or whether it's the right decision in the first place. This article will answer both of those questions. As a bonus, it will also examine when you should avoid leveraging such funds.
Let’s jump right in!
Before explaining how to get a personal loan, it is critical to elaborate on when you should opt for one and when you must avoid them.
Now, such funding options can help you meet the more expensive milestones in your life—purchasing a car or a down payment on a new house.
A vast majority of people also leverage such financial help to consolidate their debts. So, say you have multiple payments to make each month. A single loan can square off all of them and simplify your life.
A few other circumstances that could warrant a personal loan include the following:
Renovating your property can be a great way to raise its value. It will also boost your home equity. However, partial or complete remodelling can be expensive. For instance, installing a modular kitchen in India can cost beyond a lakh. You might want to consider personal loans to fund such projects.
There's no telling when you or a loved one may need to undergo major surgery or treatment. More importantly, they come with hefty bills to pay. As such, personal loans could help you here If your insurance doesn’t cover it. Even so, consider borrowing only as much as you need to meet the costs. Going beyond that will result in unnecessarily high interest rates.
If you currently have a loan with a high interest rate, it is wise to consider taking a personal loan to repay it. For instance, if you have an outstanding credit card loan with an interest rate of 24-36% per month, opting for a personal loan with a lower interest rate ranging from 10-18% can significantly reduce your interest expenses.
Having a good credit score is crucial when considering a future loan application. A simple strategy to achieve this is by obtaining a small personal loan and ensuring timely repayment. By doing so, you establish a positive credit history that lenders can evaluate, increasing your chances of qualifying for larger loan amounts in the future.
Let's start with something basic: Never use these funding options for gambling. Not only is that illegal but it's also akin to digging two graves and trying to decide which makes a better bed.
That aside, here are two other specific cases that don’t fall under acceptable personal loan uses:
Stock markets are volatile enough already. Risking borrowed funds in this space can result in greater losses than you had anticipated. For instance, apart from your recently accrued debt, you have to worry about paying back the sum with interest. That could severely impact your financial position.
This applies as a general rule to every other investment channel, including stocks, cryptocurrency, mutual funds and other securities. So, avoid viewing personal loans as a get-rich-quick scheme.
A personal loan is meant to help in emergencies. You can also use them to finance large purchases. However, it is inadvisable to bolster or otherwise replace your savings with such funding options.
And it mostly comes down to how these loans are unsecured. So, even though the interest rates are nominal, they are still higher than secured variants.
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It is advisable to avoid a personal loan if you lack the financial responsibility to adhere to regular payments. In addition, never use such funding options for gambling or to replace your savings.
If you have to finance a major purchase and do not wish to break into your savings, it is always better to take a personal loan. In other instances, such as investments, it would be wiser to use your own funds.