Wrong reasons for availing Personal Loans
Personal loans are one of the most convenient financing options to address varied needs. Be it debt consolidation, undertaking home renovation or paying for a medical emergency, a personal loan is a prudent mode of finance.
However, there are situations when availing a personal loan can become like a millstone around your neck. Keep a note of these wrong reasons for availing a personal loan:
- Borrowing for discretionary expenses
Availing a personal loan for discretionary personal expenses is not an intelligent idea. Discretionary expenses encompass spending on items that you can do without. For instance, if you already have a mobile phone and wish to buy another pricier phone, the expense incurred would be counted as discretionary. Availing personal loans for such expenses can leave you in troubled waters.
- Availing loan for making investments
A cardinal mistake that should be avoided at all cost. Availing a personal loan for making investments in various asset classes is a gamble. There are high chances of the investment failing, which will only deepen your financial troubles. The entire exercise can have a long-term impact on wealth creation and jeopardise your essential financial goals.
- Making a personal loan application when specific loans are available
Note that personal loan is an unsecured loan where lenders don’t ask for a collateral. As they are unsecured loans, the rate of interest is on the higher side. Making a personal loan application for buying a home or car, when dedicated home and car loans are available in the market, is not a good idea. Since product-specific loans are secured in nature, they have a lower rate of interest. You can save on your EMIs by opting for specific loans if available.
- Opting for personal loan on behalf of others
Availing a personal loan on behalf of your friends or relatives, in case they can’t afford to do so, may do more harm than good. In case of their failure to repay the money on time, you need to pay off the loan from your own savings. Not only does it hamper your personal finance but enhances the chances of your default on already existing liabilities, if any. This has a direct impact on your credit score and subsequently your creditworthiness.
- Getting a personal loan for starting a business
You should avoid opting for a personal loan to start a business. Any business, irrespective of how big or small it is, takes time to settle, make a profit and generate a sustained, healthy cash flow. In the formative years, you would incur more outflows than inflows. This will affect your repayment strategy and land you in a vicious debt trap.
While availing a personal loan, make sure you don’t bite off more than you can chew. Ideally, the EMIs shouldn’t be more than 40% of your monthly income.Also, make sure you compare offerings from different lenders.
Reliance Money offers personal loan at a competitive rate of interest to take care of your diverse needs. Talk to us to know more about our personal loan offerings.