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Monday, October 15, 2012

Info Post
Today, many people are availing personal loans irrespective of the need. Though personal loans are given purely on the basis of income flow, they have their relevance. You need to use them with care. Unlike home loans, these loans are given for a short period of time and without a security, hence they are very expensive.

Banks don't ask the purpose of taking personal loan. They are all-purpose loans. But, over a period of time, people are availing personal loans for improving their standards of living rather than using them to meet their unexpected emergencies.

While it is not a bad idea to take personal loans, wrong usage of it (for wrong purposes or at unnecessary times) can get you into trouble. If you take personal loan, you may have following difficulties.

• You will pay high interest amount as there is no security or collateral required.

• You need to understand that majority of your income goes towards the repayment of the high cost loan, leaving you with no surplus in your hand.

• As these loans are given for shorter tenure, there will be more strain on your monthly budget in that period of time.

• Also, these loans attract penalties for late payments. You should pay your EMI within the stipulated time in every month.

• In case if you pay your EMI through cheques and if you don't have required money in your account, you many have huge cheque bounce charges.

• As you need to repay your loan, you cannot save for future needs. Affects your savings plan over a period of time.

Use it as a last option
Taking personal loans is not entirely a bad decision. There are some situations that justify taking a personal loan, provided there are no other options (like borrowing from friends, relatives, etc.,) available to you. It is the only easily available loan which is very useful in times of need. It helps a lot in case of sudden unexpected emergencies like medical bills, hospitalization expenses, child's education fee for professional course.

Banks provide personal loans by evaluating your current financial status and your cash flow by considering your salary, rental income, and see if you have any other loans.

This product has its own set of pros and cons, much of it depends on its final use. So, depending on the circumstances, you need to consider taking it. Before you go for a personal loan, you need to keep in mind, factors like

• Choose your lender carefully - look for the one (bank) who offers lower interest rate.
• Take for a short term - even if your bank is willing to give for 5 years, you should consider repaying it within 2-3 years.
• Avoid many loans - if you take more unsecured loans, you will have bad credit score. Also, more loans lead to more strain on your monthly budget.

Thus, personal loans that are long-term with high-interest rates will affect your savings or investments plans over a period of time. Consider taking them to meet unexpected emergencies only.


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