New Delhi: Personal loans are unsecured sources of borrowing that can be used for any purpose. This loan can be used to finance anything from your child’s education to your two-wheelers. Here is a list of situations in which applying for this loan is a good idea.
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Debt consolidation
This is one of the prevalent reasons for acquiring a personal loan. Debt consolidation allows you to bundle multiple debts under one umbrella and pay them off all at once. However, you should choose this option only if you have a good credit history and are convinced that the lender will provide you with a cheaper loan.
Let’s take an example.
Assume your current outstanding debt structure is as follows:
- Unpaid credit card debt: Rs 60,000 (interest rate 3% per month)
- Gold loan: Rs 2,00,000 (interest rate 23% per annum)
- Business loan: Rs 1,50,000 (interest rate 16% per annum)
In this situation, if your lender grants a personal loan at a rate of 12% per annum, you can borrow roughly Rs 4,00,000 and pay off all your debts.
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Home remodelling
Your home’s condition deteriorates with time. You may detect ceiling leaks, rusty doors and windows, and so on. You will also notice the requirement to replace the overall wiring with new ones, which will aid in lowering electrical usage. If you live in a mid-sized house, the cost of home repairs can reach lakhs. In addition to the essential materials, you will need to pay a carpenter, a plumber, and an electrician. Therefore, applying for a personal loan is a wise move.
You may be wondering why you should not take out a house loan to cover the previous expenses. The reason for this is home loans are a type of secured financing. Your home is pledged to the lender until you pay off all outstanding debts. If you default on your loan in the worst-case situation, you risk losing your home, which is worth significantly more than your loan.
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Moving costs
You may ignore the relocation charges when you start a new job in a new place or aim to relocate your business. But did you know that relocating expenses might eat into your budget? If not, continue reading. Many assume moving cost is limited to movers and packers. They usually don’t factor in the tenant improvement cost. Moving to a new apartment requires spending on wiring, plumbing, purchasing new furniture, and a few more. You will also need to apply for several new utility connections. These minor and significant expenses add up to around Rs 1 lakh to Rs 3 lakhs. As such, rather than paying the entire cost out of your pocket, paying instalments (EMI) is preferable.
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Emergency expenses
Certain types of charges may occur when you least expect them. The most prevalent of them is medical uncertainty. Assume it’s the end of the month, and you have spent all your monthly income and are only left with enough to cover your groceries. Suddenly, your loved one’s health deteriorates, and they require immediate hospitalisation. In this instance, how would you manage the hospitalisation and pharmacy bills? The answer is applying for a loan. One of the greatest features of this loan is quick approval. The lender will issue approval within minutes once you calculate your future commitments using the personal loan EMI calculator, fill out the application form and submit your KYC.
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Vehicle financing
There is much debate about whether you should finance a new car with a personal or a car loan. Several people recommend car loans. But are they really the best? You may want to change your views after reading the next lines. The lender requires you to contribute to the down payment on a car loan. Furthermore, until you pay off all of your debts, the car is hypothecated with the lender, who has the authority to auction it off in the event of default. But, you won’t find these things in a personal loan. Under this loan, neither you need a down payment, nor your car is hypothecated with the lender. However, the only downside of a personal loan is the interest rate, which is slightly higher than a car loan.
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Wedding expenses
Wedding expenses are sometimes more expensive than purchasing a new home. The typical wedding cost, including ring ceremony, jewellery, caterers, and venue booking, is between Rs 35 lakhs and Rs 60 lakhs. In case you prepare for a destination wedding, the expense just doubles. Applying for a personal loan in this circumstance relieves some of your load.
To conclude
This loan can be utilised for nearly anything, which is why it is classified as “personal.” However, it is strictly recommended not to apply for this loan unless necessary because it will only increase your expenses and may cause you to default.
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