The most advantageous factor of a personal loan is that it is very easily available. This is because the lender of a personal loan does not have many compliances to follow. The lender asks no questions and there is no criteria that has to be met by the borrower. However, there is a downside. This is very much unlike the loans taken for education and housing. The downside is that personal loans come with a very high rate of interest. Thus most of the financial experts advise against taking of these loans.
When to go for a personal loan?
There are a few circumstances in which you can easily go for this kind of loan. However these circumstances can also be termed as rare. These are as follows.
- You should not take a loan to purchase any expense that is consumption based. This includes buying a TV or a car. You should also not even think of funding a holiday by taking a personal loan.
- You can opt for this type of loan only during cases of emergency. You must however do this only if you are sure that you will be able to pay back the loan in time.
- In case you are buying a new house and the purchase price of the house is very much higher compared to the home loan, you can bridge this gap by taking a loan. This is an exceptional case and there is nothing much you can do. It can also be a safe investment decision if the value of your home appreciates.
- This loan is a very good choice if it can result in a significant amount of savings or if it is able to help you gain possession of any appreciating asset.
If you are going through a situation in which you are repaying a loan that has an extremely higher interest rate and while the interest rate of your loan is lower, it will be very much better for you to opt for the loan. This is because the latter can be used to settle or close out the higher interest debt.
Thus it must be understood that a personal loan can be a very easy way to go through in the short term, but in the long run it can have a significantly negative impact on your financial status. It is one of the important things to remember.