4 Occasions When You Need A Personal Loan

  Author: Naveen Kumar

There are two major aspects that differentiate a personal loan from other loans. First, you typically don’t need to offer any collateral to back up the loan. Second, is the high interest rate that emanates from it being an unsecured loan. In normal circumstances, it is better to avoid a personal loan given the high repayment burden it imposes. However, in case of certain special circumstances, you could favour personal loans. Here are four such occasions when taking a high cost personal loan can be justified.

Medical emergency When you have an emergency like hospitalisation and you do not have a credit card. Or, the available credit card limit is insufficient, opt for a personal loan. Ensure that the loan amount and EMI, is well within your repayment capacity.

Address temporary cash crisis There are occasions when your expected income gets delayed. It can threaten to impact your financial obligations and commitments besides impacting your business, professional and social credibility. If you are reasonably sure that your future income can easily cover the EMI, go for a personal loan.

 Bridge fund for a productive activity There are occasions you need to manage funds shortfall in an activity that will be financially more rewarding in the future. For instance, you might fall short of funds that will help you walk into your new home with bare facilities. In the process, it will save you from the double whammy of paying rent and home loan EMI. Or, the educational loan may not be enough for your child’s admission to a prestigious college or university. However, this will eventually help your child becomes financially independent.

 In such cases, where the personal loan is helping you save money or create future income, you can view it favourably. Needless to say, stay away from a personal loan for any speculative investments such as speculative property buying or speculative stock market investments.

 Meeting an earlier-than-expected need You might have made investments for an anticipated need but the need arises earlier than you anticipated. For instance, you might have planned for your child’s marriage at age 25 but the needs arises at age 23. In such cases, you might want to avoid premature exit from investments that involve penalties for such exits or the redemptions that will happen at a loss. You can then consider a personal loan amount where your total payout will be completely covered by your investments.

 Often, financial emergencies arise all of a sudden and there are times when you are in urgent need of money. In such situations going for a personal loan makes financial sense. Of course, you need to be confident of repaying the loan and following financial prudence.