Is the personal loan really a good choice? Keep reading to find out

Health conscious people are always on the hunt for healthy eating, but they too have cheat days when they gorge on their favorite meals. Festivals are such a time when many disciplined financial planners go beyond their spending limits or budget just to satisfy their instincts. But breaking the spending limit can come at a cost, especially when you’re part of a fixed-income group. Often, we end up opting for personal loans to meet our needs or in times of financial crisis, when you do not have enough savings. However, is the personal loan really a good choice? Let’s see if the pros outweigh the cons:

The inconvenients

Extra EMI Burden: It’s easy to follow your heart and spend on things you love, but only until the credit card bill pops up or the personal loan EMI alert hits your cell phone. Every person has spending limits due to various liabilities and obligations, hence income is pretty much tied. When you follow your heart, it increases this passive column and thus reduces your previous monthly expenses.

High cost in every way: The personal loan is an unsecured loan, which means that it does not require any collateral or collateral to avail. Hence, it is expensive compared to other loans. Moreover, the personal loan also carries substantial costs in the form of processing fees, prepayment charges and heavy penalties in case of default. In short, not a promising business unless you are in dire need of funds.

Impact on your credit score: This can be a positive thing for beginners to build their credit history. However, defaulting on the loan reduces your borrowing power in the future. Therefore, a simple non-payment error can not only land you hefty penalties, but also negatively impact your credit score.

Hardly ever a profitable transaction: you cannot legally buy a house or invest in mutual funds or stocks using a personal loan. Since the lender always asks the reason for using the loan and also agrees not to invest the money in the stock market. Going by the above understanding, the personal loan is generally used for emergencies or the purchase of consumer durables or home improvement or other related activities – neither of the two can result in a return or profit to the customer. ‘coming.


Personal finance management: People with multiple loans can take out a personal loan to better manage their finances. Since multiple loans have multiple interest rates, someone with a good credit score can get a cheaper personal loan and pay off only one fixed interest rate loan. It is nothing but debt consolidation that can lead to savings in interest charges.

Spread huge costs over simple IMEs: Events such as weddings or medical emergencies require a substantial sum of money. Sometimes these events outlast your emergency funds. In such cases, one can avail a personal loan and overcome financial need by paying monthly EMIs. Even in the event that you do not want to liquidate your investment and you have sufficient income without liabilities, a personal loan can be useful if the expected returns from such an investment are greater than the interest cost of the personal loan.

Quick money without security: If early in the morning, you search for a personal loan on “Google”, it is possible that you will receive the funds in your bank account before the end of the day. What the lender requires is a good credit score from the borrower and KYC. You can get a personal loan in hours rather than days. Also, this loan is not tied to any of your assets. Thus, no lender consent is required to sell any of your assets.

In conclusion, personal loans do more harm than good. However, they are not a bad option to explore. Human needs differ from person to person and are constantly changing. So if you could plan your expenses from the start, you could save yourself some setbacks. But in case of emergency or to manage your finances in an optimal way, you can benefit from personal loans provided you pay them on time and plan your future expenses more efficiently.

(Viral Bhatt is the founder of Money Mantra – a personal finance solutions company)

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