Why should you take a personal loan?

Personal loans are among most easily accessible capital when one needs it. The processing is faster and the requirement of documents is relatively simpler. Any persona with a decent credit rating and repayment capacity can avail such a loan in a matter of hours from any financing institution. However the rational utility of taking such a loan is often a debated topic among financial analysts. The rates of interest being invariably high with a short repayment period make the EMI burden cumbersome on many borrowers who realize this fact only after having ended up spending the money availed in a personal loan. Thus the customer must have sufficiently strong and justifiable reasons while applying for a personal loan.

Some Justifiable Reasons to take a Personal Loan

The exact reasons and justifiability varies with individual situation. However here are some of the more logical causes for which taking a personal loan is considered to be a smart option.

• Paying off credit card dues. If due to some reason one has accumulated huge credit card dues which are difficult to clear off through conventional means availing a personal loan will be of immense help. Credit card defaults are charged with extreme high rates of interests to the tune of 45% to 60% annually. In such a scenario the personal loan is relatively cheaper way to get rid of the dues.
• Paying for unforeseen situations such as medical expenses. Rather than taking cash advance from credit cards getting a personal loan to meet contingencies is good idea. Since the processing time is less and simpler a personal loan availed can be used till such time one can draw from other reserves and repay the personal loan.
• To invest in an assured high return scheme when the time to avail the opportunity through other sources is not available. If one finds a good piece of plot which is about to be sold a personal loan for buying it a smart move.
• To meet cost of marriage or honeymoon a personal loan can be availed though it should be avoided as far as possible.
• Some people use personal loans to buy household gadgets and repay the money in easier installments subsequently. As long as one does not end up buying non essentials or over spending using a personal loan for such requirements is justifiable.

Some Poor Reasons to take a Personal Loan

There are special loans for many purposes which come at a lower interest rate as compared to a personal loan. Some such reasons where a personal loan is unjustified are listed below.

• Buying a car. Taking a car loan with longer repayment period and less interest is preferable.
• Home improvement with personal loans is not advisable as there are special home improvement loan available in the market that can get you tax benefits too.
• Investing in speculative avenues with a personal loan is one of the most foolish financial decisions which must be avoided at all costs.
• No business should be ever started with a personal loan and special business loans may explored for the purpose.
• Paying off one personal loan with another is a stupid way of handling money as one only ends up paying more interest and additional processing fees to the banks.

The borrower needs to do a careful study of all available options to raise the capital needed before deciding to avail a personal loan.