A personal loan is a very useful financial tool that can help you get out of dire situations. For example, in case of handling medical crisis, repair costs, or making urgent purchases, a personal loan can be your best choice. Recent surveys have revealed that people are more inclined towards obtaining small-ticket cash loans that can be availed easily and repaid in small monthly EMIs.
Today, with the enhanced accessibility, it has become more convenient than ever to avail an instant personal loan. Funding backed by reputed NBFCs available through these apps also offers some of the best features and facilities for the borrowers. Despite all the perks, the first thing you must analyse before availing a personal loan is asking yourself – ‘Is this personal loan necessary?’
Availing a personal loan is a serious financial obligation that will affect your monthly budget for months. In addition to that, you must consider the uncertainties like a job less or a health crisis that might affect your finances. Living a debt-free life is always the best option. But, if you have a strong financial cushion, like assets or investments to take care of your EMIs even in case of an unforeseen event, then opting for a personal loan can be a smart decision.
Is It Necessary to Use a Personal Loan? Find Out
Personal loans are financing options that come with zero restrictions to end use. It makes them suitable for funding all types of expenditures that an individual may come across. For instance, you can pay for your emergency medical expenditures with the advance, finance wedding expenses, pay for higher education, invest in your business for its operations or expansion, or even use it to fund travel expenses. But the extent to which these loans may or may not be necessary is purely situational.
Here are some situations in which availing a personal loan can seem like a necessity –
- As a financing bridge
You may seek funding to pay for your upcoming expenses either when you lack funds or when you seek to manage your finances with efficiency. Essentially, these loans are designed for both purposes. You can always resort to availing a cash loan to fulfil your financial shortfall. For instance, these loans can provide the necessary funding needed to make travel bookings if you don’t have the necessary funds available.
- As a necessity
A personal loan can be your best bet in meeting unforeseen emergencies like medical crisis, repairing costs of your vehicle or house, home renovation in case of a calamity, and any such other expenses that cannot be pushed to another date. Such emergencies can be easily taken care of with a personal loan and you can repay the loan in small instalments in the form of EMI.
- As an upgrade
Sometimes, upgrading your gadget may be a necessity. For example if you need a high resolution camera for your professional photography or a laptop for your freelancing gig, you can easily buy these on finance. It is more likely an investment that you are supposed to get returns for in the near future.
- For your business
A personal loan is an unsecured loan that comes with zero end use restrictions. This means you can easily use your cash loan amount to finance your start-up business. In the initial days of setting a business, you need substantial funding and a business loan requires lots of paperwork. Thus, an instant personal loan can be your best option to meet your financial needs.
- For debt consolidation
A personal loan can help you get out of a debt trap. You can use an instant cash loan to consolidate your debts through multiple credit cards or loan accounts. It can help you save on the interest pay out and also manage your debt well with one single EMI.
Situations in which a personal loan is not a necessity
- As a lifestyle choice
Using a debt instrument for your lifestyle choices is always a bad idea as it creates a hole in your pocket draining your wealth. Your lifestyle choices should be as simple as possible if you want to create wealth.
- To host an event
Whether it is the seventh party of your wedding or your kid’s birthday party, you can always choose to keep things simple and avoid getting into a debt. This not only reduces your financial burden but also keeps the doors of financing open for a real emergency.
- For fulfilling your aspirations
Many people use financing to fulfil their aspirational needs. While there is nothing wrong with it, it is always smart access the risk associated with such financing. Also, you can always for happiness that comes within your budget.
Calculating Your Expenses for Borrowing and Loan Affordability
Financial prudence suggests that one must borrow only as much as is needed and not the amount they are eligible for. Often, individuals may come across situations where they are eligible for a higher financing value than their actual requirements. For instance, if you need a small ticket loan of up to Rs.50,000 but your borrowing profile makes you eligible for up to Rs.1.5 Lakh, it may always be tempting to go for the high loan value, but is not suggested.
It is because borrowing only what is needed leaves enough space in your income to accommodate new funding as and when needed. It also keeps your credit dependency low and makes you a favourable borrower for the lender. It is thus essential that you calculate how much you need as a cash loan based on your upcoming expenses. Identify these expenditures and create a borrowing plus repayment plan before applying for a loan.
To add to your borrowing prudence, you must also check how much loan amount keeps the repayments affordable. You can use an instant personal loan EMI calculator and make a suitable assessment. It is best to strike the right balance between the EMI affordability and the interest affordability, which can be affected by your choice of tenure as well as the amount selected.
When applying for a cash loan, leverage your eligibility factors that exceed lender requirement to negotiate for favourable terms on the loan, including a low rate of interest. With several financial institutions in the market offering these loans against simple requirements, you can easily compare between lenders to choose the best financing avenue for you.
Availing a loan is a big financial decision and you must apply for one only when it is absolutely necessary. You can check out all your options and make a detailed calculation on your total interest pay out using a loan calculator to analyse if it is an affordable option. Doing the due diligence before opting for a personal loan can help you manage your finance well.