A personal loan has today become a common mode of getting instant cash. Easy eligibility criteria and a quick disbursal process are the two major reasons behind the growing demand for personal loans. In recent years, the need for personal loans has increased.
Statistics: According to RBI data, the credit outstanding for the personal loan category increased by 12.1% from Rs 26 lakh crore in September 2020 to Rs 29.18 lakh crore in September 2021.
The beauty of a personal loan is that these are 'any purpose' loans. The proceeds from a personal loan, unlike a home loan or a car loan, can be used for any purpose. So, what do people commonly use a personal loan for?
Below are the ways people commonly use a personal loan for.
Paying off Debts:
One of the most common uses of a personal loan is consolidating the existing debts, especially credit cards, into a single loan. A personal loan helps clear all your existing debts and maintain a single loan. Yes, handling a personal loan EMI is far better and more convenient than managing multiple EMIs with different debit timings.
Interest saving is also possible with a personal loan. Most people prefer refinancing their high-interest credit card debts, which helps you save on the interest rate and minimize your financial burden to some extent.
Renovating your home is an unplanned expense that most of you don't plan early. Usually, there are two scenarios in home renovation when you require additional funds urgently.
You may not have planned any renovation, but your current home condition has made it mandatory to spend some money and maintain it for its longevity. Common situations when home renovation becomes essential are - damage to the drainage system, excessive damp patches, leakage in walls, change in design, etc. In such a condition, you don't have any option except to look for urgent funds, and that's where people apply for a personal loan.
In another scenario, you may have saved money for home renovation but that has fallen short at the last moment. Renovating your home may include some new upgrades that add to your expected budget, so you require an additional sum. Often homeowners prefer such upgrades as the renovation is a one-time investment in a decade that requires a significant sum. Only a personal loan can serve such an urgent need for additional funds.
FACT: According to Experian's Study, about 17% of customers prefer a personal loan for home improvement.
You should note that home improvement not only includes restructuring or redesigning your home,but also includes adding new appliances and upgrading old appliances.
Fees for Higher Education:
Education loans are easily available for candidates aspiring for higher studies.. However, education loans are only limited to paying for reputed institutions. This loan won't help you pursue online studies or take any online courses.
For such a case, a personal loan is a boon to pay for your online course fees. Nowadays, multiple websites like UpGrad, Coursera, skillshare, etc., provide you with fantastic job-oriented courses, some of them being costly. Getting a personal loan is a right and more practical option to pay your entire fees and start growing your skills. Interestingly, some online websites (like UpGrad) also provide degree courses that help you continue your job with higher education.
Across the globe, an emergency is one of the most uncontrollable situations to be in. Yes, numerous situations come when you have no option but to ask for financial aid. All unexpected situations in your life, like car engine damage, bike theft, and medical emergencies are common situations that you can't control.
Above all, people never plan their finances for such emergencies in advance. Hence, there is always a need for an emergency fund that is only possible with a personal loan.
Many people take advantage of personal loans to tide through their emergencies and move out of the situation without struggling to manage their finances.
Managing Wedding Costs:
Indian culture strongly prioritizes weddings with significant investment from both parties. However, expenses afforded by the bride's end are much higher than the groom's side.
Planning a wedding requires significant funds that are not available to everyone. That's where most people prefer taking a personal loan to manage the entire wedding costs comfortably and turn the wedding into a memorable event. Weddings are one such event that everyone wants to remember for posterity and they would not mind borrowing money to finance it.
Everyone has a plan to spend precious time with their family. Some pre-plan their dream vacations and bring them to reality once the funds are ready. However, gathering funds for the vacation isn't feasible for all.
Foreign trips are some of the vacation plans that aren't affordable for everyone. Hence, they always look to someone for financial support to make their dream a reality. That's why many people prefer getting a personal loan.
Some of you maybe government or private employees who might get promoted with a transfer to a new location. Undoubtedly, a promotion is a great event to enjoy, but the new job often entails relocation.
Relocation is a hectic task that involves significant money. Government employees often get compensation for the relocation cost, but private employees pay it from their pocket. It's tough to stay financially prepared for the relocation. That's why many people apply for a personal loan to get enough funds for relocation without bothering the financial stress.
Education is getting expensive with each passing day. However, no parent wants to make the higher expenses a burden on their kids' education. Hence, they either save for the higher studies of their kids. Unfortunately, for those of us not having adequate funds, a personal loan is a practical solution to make it possible for your kid to pursue their educational aspirations
Apart from the end-use advantages listed above, one must exercise caution before enjoying this flexibility of a personal loan. Below are the factors that you must strictly consider before applying for a personal loan amount.
Interest Rate: Lenders/banks have different interest rates on your personal loan request. The interest rate has a direct impact on your EMI. Hence, you should research the bank offering the lowest interest rates. Note that interest rates are available in two formats, i.e., fixed and floating.
Loan Amount: Financial experts highly recommend taking a personal loan equivalent to your need. You shouldn't take a personal loan higher than your requirement as it will only add a financial burden to your monthly budget. A higher personal loan means a higher EMI affecting your monthly expenses and savings.
Loan Term: You can get a personal loan for one to seven years. This doesn't mean you set the repayment tenure to seven years. You end up paying a higher interest with a longer repayment tenure.
Additional Charges: The entire loan approval process involves multiple charges like processing charges, late payment penalties, hidden charges, etc. You must be aware of all the additional charges associated with the loan.
Repayment Plan: It's OK if you are planning to get a personal loan. But what matters the most is how you will repay it. You should prepare a repayment plan before the loan disbursal. Your pre-planning will help you make the repayment process smooth and quick.
This brings you to a well-educated personal loan borrower. Whether you are planning to get a personal loan or have recently applied, follow the points mentioned above to get a suitable lender/bank to proceed with your loan request.
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