People take personal loans all the time. This is because not everyone saves a lot of money in their bank account. Some are not able to save due to big expenses, while others don’t have enough cash due to investments in real estate or some other investment scheme. Either way, personal loans are able to solve the problem of cash crunch rather easily. However, you have to be careful when you apply for one yourself.
Not every reason to take a personal loan is a good one and you don’t want to take a loan only to face problems when you have to improve Cibil score or create unnecessary debt. The following are some of the reasons that you need to keep in mind when you consider applying for a loan:
When you are about to start a new life with someone, then you want it to be free of stress and worries. However, if you decide to finance your wedding with a personal loan, then you may get the opposite of what you want from your new life.
In India, weddings aren’t just ceremonies of special events but rather small festivals of their own which comprise fanfare, delicious food, elaborate performances, and more. However, this costs a lot of money. So, those who can’t arrange lavish weddings on their own, take loans which is something that’s not recommended by experts as that can create a huge debt that’s shared by two individuals who start a new life.
2. Illegal Activities
Most banks won’t disburse loans for unlawful activities. So, it’s a bad idea to hide your real reason and get a loan under false pretences. If the lender learns about the real deal, then you can face legal action.
3. Loan on Someone Else’s Behalf
Let’s say that a friend of yours checked their free credit score and realized that it’s not up to the mark. They tried getting a loan but failed time and again. They may then ask you to take a loan on their behalf if you have a good score yourself. Saying yes to that request could be a really bad idea and can even ruin your relationship with them.
4. Investment in Stocks
There is nothing wrong with purchasing stocks for financial gains. However, stock markets can be quite volatile which is why if you want to invest, then use your own money rather than a personal loan.
You are free to choose a lifestyle, even if it’s quite expensive. However, if you need to take a loan from a bank to maintain it, then it’s better to eliminate some of the luxuries instead. You don’t want to give rise to debt just so you can enjoy a lavish lifestyle.
6. Paying Off Other Loans
You don’t want to take a loan to pay off an existing loan unless the new loan offers a much lower interest rate to make up for the expenses that will incur. You should be careful as this concept can also lead to bad financial habits.
Let’s take a look at some of the reasons for which it’s a good idea to take a personal loan and use repayment to improve cibil score as well:
When you take an education loan, then your purpose is to increase your value. For instance, you can use the funds to increase your qualification or to get certification in a particular domain that can help you to get better jobs. This means that you will get to earn more money, and the banks understand this. This is why most of them approve education loans easily if your paid or free credit score is good and your academic history is bright.
Real estate is an appreciating asset. This is because the financial value of commercial and residential buildings increases over time. So, when you want a personal loan to buy property, then again, it can be easy to get approval from banks or NBFCs. However, you may not get a huge loan unless you run a highly profitable business or have a big salary. In most cases, you will need to fund a portion of the price with your own pocket.
So, as you can see, there are both good and bad reasons for taking personal loans. You just need to ensure that you always pick the former. Good luck!