Spend, Save and Invest Smartly
A personal loan can be a good loan or a bad loan depending on how you put it to use. You don’t need to state the purpose of availing a personal loan when you avail it from the bank .You also don’t need to give a collateral (security ), when availing a personal loan. This means you can easily avail a personal loan in an emergency.
The purpose of availing a personal loan decides whether this loan is good or bad. You can avail this loan for a medical emergency (say a heart attack), for a marriage or even as a down payment for a home loan.This makes the personal loan a good loan. If you avail the personal loan for purchasing a consumer gadget such as a high end Smartphone or a laptop, or a costly watch, this could make it a bad loan. You would have difficulty enjoying listening to music on the smart phone, knowing that you have a personal loan to repay, which has quite a high interest rate. Avail a personal loan as a last resort. A medical emergency, an extreme shortage of funds in a marriage may mean you need a personal loan.
Bank does not take collateral (security), as a guarantee for a personal loan. This means the responsibility of making the repayment in time is yours. You may be tempted to fall back on your repayments (postpone your repayments), or even default on this loan. If you do not repay the personal loan in time your Cibil score would be affected. You will have a low Cibil score and will not be able to avail a home loan , or any other loan when you need it the most.
If you have already availed a personal loan and fallen into a debt trap, you need to make sure that you repay this loan as soon as possible. You can always prepay your personal loan, with a bonus you get from your job. You may have to pay a small prepayment penalty, but it is worth prepaying the personal loan.
When you purchase a home the bank sanctions only 80-90% of the cost. You have to arrange 10-20% of the cost of the home/property yourself. You can avail a personal loan for the down payment on the home loan. You can then buy a dream home or even a second home which you sell years later for a profit. This makes the personal loan a very good loan. Finally the best judge of a personal loan is you. You need to decide if the loan is in your best interest and if it is, then definitely go ahead and avail it.When you avail the personal loan take responsibility for repaying it yourself and do not depend on your family members for repaying the loan. This might drag your whole family into a debt trap.So avail a personal loan responsibly.