Making Smart Use Of Personal Loans

A personal loan is an unsecured loan offered by banks and NBFCs to individuals without stipulating the purpose for which it is to be used. Perhaps, the two most attractive features of the personal loan are that firstly, there are no uncomfortable questions asked or lengthy explanations to give; and secondly, we do not need to put down any collateral. However, the personal loan interest rates range from 8.75% to 49.5%. The rate varies from lender to lender. It also varies from borrower to borrower depending on their credit score.

Since the personal loan interest rates can be rather high, it is best to use the facility with prudence and only if required. Here are some of the personal loan uses, which you should consider.

Business Investment:

If you are running a business, you could avail a personal loan for any business-related expenditure that you feel will increase your business returns in the long run. This could be for a capital investment, to spruce up your office to attract better clientele, to pay your staff salaries during a crunch, to travel to seal a deal, or anything else. You could also use a personal loan to begin a new business venture of which you are confident of getting returns.

Emergencies:

In today’s age where nuclear families are the norm, it is not unusual to find ourselves in a situation that demands a large sum of money which is not readily available in our account. It may be a medical emergency demanding immediate hospitalisation, for which the insurance cover is absent or insufficient.

Top-Up To A Home Loan:

While home loan rates are generally lesser than personal loan rates, most banks and NBFCs only offer up to 80% of the purchase amount as a home-loan. If you are buying a home or constructing a house, you will be required to finance the remaining amount through other means. Many home buyers find it useful to take a personal loan to cover the deficit.

Maintaining A Good Credit Score:

There are times when you have an existing loan but due to some exigency you are unable to service the EMI. This affects your credit score adversely, the chances of getting a loan in future, as well as the future interest rates you are offered. A loan for this purpose is one of the most practical personal loan uses that a borrower has recourse to.

Home Improvements:

A personal loan comes in handy when you need to make some necessary improvements to the home, but do not have the liquid cash to pay up front. Such improvements could be attending to seepage issues, buying home equipment, home furnishing, etc. This is especially useful when setting up a new home due to a transfer.

Education:

Very often as parents, we find ourselves in a quandary wondering where to get the finance to help our children get the quality education necessary to give him or her the much-needed edge. Sometimes, we also need to finance our own higher education or a part-time course to improve our skills and prospects. A personal loan is a big help in times such as these.

Travel

A personal loan also comes in handy when one needs to take a break, away from the regular stressful routine of work and home. It may be that you are changing your job and are aware that getting leave in the first year of your new assignment will be difficult. Yet, you are aware that while you do not have the money to finance it immediately, your new salary structure can easily cover the EMI. Going for a vacation will also help you refresh yourself and immerse yourself in your work with energy and zeal.

Debt Consolidation:

Another compelling reason to consider a personal loan is if you have multiple loans from multiple agencies with due-dates spread all over the month. Keeping track of these loans and payment schedules can become difficult. You may find yourself missing a payment and being charged a fine because of this. You may find it useful to take a personal loan to repay off the numerous smaller loans in order to avoid these slip-ups. In addition, each missed payment affects your credit score, something which you will definitely want to avoid.

Conclusion

To conclude, a personal loan is an extremely attractive product offered by banks and NBFCs because there are no strings attached to the personal loan uses. However, do consider whether the gains to be obtained are well-worth the cost of the loan. Needless to say, do the math and balance your personal income-expenditure accounts to ensure that you have the spare money to service each EMI on time.