Personal loans are unsecured loans for which the banks take no collateral against the amount. These are usually used for emergencies and personal needs. These loans as easy as they may seem are an added expense to your pocket.
Personal Loans are a good option if you can bear the extra cost associated with it. These loans come with a high-interest rate due to no collateral being attached to it. There are circumstances where taking out a personal loan is evitable and should be avoided seeing the generally high repayment rates and short-term nature of these.
There are numerous reasons why one should not opt for a Personal Loan and some of them are listed below:
Do not opt if Specific Loans are Available
Never opt for a personal loan if specific secured loans are available. For example, for buying a car make sure to use Car Loans as these are secured loans and will have lower interest payments as compared to the personal loans. Similarly make use of specific secure loans for buying a house, education, etc.
Do not take Personal Loans to make Risky Investments
Personal Loans should never be taken for investing stock markets or mutual funds as these are risky investments. The result of these investments is unpredictable, in case things go south you will have to pay the installments and bare the loss that has occurred due to wrong or misguided investments.
Investing in stock markets and mutual funds in risky and should not be treated as a shortcut to become rich, to be rich using these techniques take a lot of time and analysis.
Do not take Personal Loan if employment and salary are unstable
Taking out a personal Loan knowing that your income is unstable will only lead you to become a payment defaulter causing a burn on your credit report as well. Thus, instead of taking out a personal loan cut down on your unnecessary expenses and invest the money you have in a savings account that provides you a good rate of interest hence laying the bed for a secure future.
Do not take Personal Loan for someone else
We generally make the mistake of taking loans on behalf of our very close friends or relatives. It is of utmost importance to realize that it will be you who will have to pay the loan on their behalf if they fail to make payments.
Money lenders and Banks perform a thorough analysis of a profile before lending money thus, people who fail to qualify do not have the means to repay that loan giving you all the more reason not to take loans on someone else’s behalf.
Do not take a Personal Loan to improve your credit score
If you are taking a personal loan to gain experience with credit handling and trying to improve your credit score it is the worst way to improve it as it will not be easy to get a personal loan apart from that a higher interest may be charged.
It is better to keep paying your credit bills on time which will eventually have a positive impact on your credit report than to take personal loans and pay a huge interest rate.
Personal Loans are an amazing financial tool that can be used in many situations, but they are also a tool that can cause a lot of stress and leave you in a huge debt. Therefore, it is imperative to thoroughly understand what you are getting into and analyze the pros and cons before making any decisions.