A personal loan may have a high interest rate but there are some situations when they work better than a credit card. Here are four of them.
Hello and welcome to FundooMoney, your 24X7 buddy for all your money matters. Two major aspects that differentiate a personal loan with other loans are that you typically don’t need to offer any collateral to back the loan, Second is the high interest rates of personal loans due to it being an unsecured loan. In normal circumstances, it is better to avoid a personal loan given the high repayment burden it imposes on you. However, in case of certain special circumstances, you could favour personal loans. We tell you about these four situations in just a little while.
Here are four situations when taking a high cost personal loan can be justified.
Medical emergency
When you have an emergency, such as a medical 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
You might fall short of funds that will help you walk into your new home with bare facilities, in the process saving you the double whammy of paying rent and home loan EMI. 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 be it property, stock markets or derivatives.
Meeting an earlier-than-expected need
You might have made investments for an anticipated need but the need arises earlier than 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 will happen at a loss. You can then consider a personal loan amount where your total payout will be completely covered by your investments.
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