It’s true that a personal loan can be your best friend in times of need. It’s easy to apply, has a faster approval process, and you’re not answerable to anyone regarding the purpose of the loan.
Some of the other benefits of a personal loan include:
- You don’t have to submit a purchase plan to get the loan approved.
- A lower rate of interest than credit cards.
- Getting a personal loan can boost your credit score.
- They give you quick access to funds during emergencies.
Having seen the advantages, it might seem like a personal loan is one of the most convenient ways to provide your finances. But any time you need financial assistance, personal loans may not be the ideal option. Whereas in certain cases the best possible solution will be to go ahead and apply for personal loan. Let’s consider different scenarios and determine whether a personal loan could be a good or a bad idea.
Seed Money to Get Your Business off the Ground
Are you contemplating to start a business and want to make it a reality? Finding monetary assistance for a brand new company is not easy. If you plan to apply for a business loan, most banks will require you to submit documents like business plans, bank statements of the company, and more.
In such a situation, taking a personal loan can be a good option. You don’t have to submit any documents, and the interest rate is on the lower side. Although one downside of taking a personal loan to fund a new business is that you may not be able to apply for a large sum. Generally, the maximum loan amount you can borrow is 10x your income.
Paying for Your Higher Education
The cost of higher studies, like post-graduation, Ph.D., and other degrees, is staggering. Even scholarships are not easy to come by. If you are looking to further your education qualification without a stable source of income, applying for a loan is a wise move.
Although you can take a personal loan to pay for your education, it might not be the best financial step for you. You can apply for an education loan instead. The reason for this is, these loans are made available specifically for education. They are bound to offer you better benefits than personal loans. Low-interest rate, flexible repayment option, and being tax-deductible are just a few of the advantages of a student loan.
Financing Your Wedding
Everyone dreams of having a beautiful wedding, after all, it is one of the most important days of our lives. But paying for a dream wedding is a whole different story. Weddings are an expensive affair, and paying from your pocket is not always possible.
Your best bet is to apply for a loan. Many banks now offer personal loans specifically to pay for weddings. They offer attractive rates, and higher loan amounts to the happy couple. A personal loan stands as one of the better ways to finance your special day.
For couples who are looking to tie the knot, it is advisable to consider paying half the expenses from your pocket. This way, you will not incur a lot of debt.
Buying a Car
Are you looking for ways to finance a new car? If you are planning to apply for personal loan, wait a minute and consider this. Aren’t car loans specifically available to help you buy a car? You will have to pay a lower rate of interest and have access to funds quickly.
If you take a car loan, you can still be eligible to apply for a personal loan if you need immediate access to funds. You won’t be cutting off a valuable source of credit. On the other hand, a personal loan might seem attractive because you don’t have to provide collateral. But overall, an auto loan could be the better option to finance your new car.
The same argument can be made if you are planning to buy a house. Home loans are the smarter choice because you will be able to borrow more at a lower rate of interest, and over a longer tenure. A personal loan might not cover the expenses of buying property.
Paying off Your Medical Bills
Medical bills can come in fast and thick. Whether it is for yourself or a loved one, you can never predict when you might need funds urgently. Many insurance policies might not cover daily check-ups, medicines, and minor treatments.
You can take comfort in the fact that a personal loan is one of the most convenient ways of clearing your medical dues. You will need to keep in mind the repayment conditions, especially if you need to take a sabbatical from work to recover or take care of your family member.
One of most common reasons for taking out a personal loan is a home renovation. It is understandable that putting off repairs is never a good idea. You cannot apply for a home loan because they are not applicable for renovation projects.
In this situation, you are better off applying for a personal loan. It will offer you a little more wiggle room, in terms of last minute expenses. You must be careful not to go overboard and apply for a large amount. Doing so can put a strain on your finances.
Paying for a Vacation
Have you always dreamed of traveling the world? Holidays, whether local or international can be expensive. It is not always possible to plan a trip within your budget. But applying for a personal loan to finance your trip may not be a wise move.
A vacation is not a necessary expense. Taking a loan to pay for it is an indication that you cannot afford to pay for it without assistance. Incurring debt for a getaway does not make financial sense, especially if it impacts your finances. It is always better to save money, and use it to finance your dream holiday.
Paying off Credit Card Debt
Credit cards incur a huge interest rate, and keeping up with payments is not easy. Debt is a slippery slope which is very difficult to get out of. Even your score will come down drastically. If you have card debt, and unpaid loan installments, you can apply for a personal loan to consolidate your debt.
Debt consolidation will help you pay off your loan and the outstanding amount on your cards. As long as you pay the installment for the personal loan, you will be able to repay your debt and bring up your credit rating slowly.
All of the above situations bring into focus three main points to take away.
- Save rather than taking a loan for expenses that are not essential.
- It is better not to opt for personal loans for purchases like a car or home, where specialized loans are available.
For any other purchases that do not fall under these two categories, personal loans could be your best bet. Before you go ahead and apply for a loan, make sure you choose the right one by comparing personal loan on comparison websites.