Five Bad Reasons for Which You Should Never Take a Personal Loan

Every once in a while, we are all in a situation where we could use some extra cash. However, not everyone has the collateral that they could use to secure a loan. In a few other cases, the banks or lenders might not want to give out a loan for the reason you need it.

That’s when a personal loan comes in as a savior. You could get it from a bank or a private lender without having to mortgage any of your possessions. However, it comes with a catch. Personal loans are usually expensive in terms of the interest rate. Does that seem like a good enough bargain, given that you’d be getting easy money? Well, here are five bad reasons for which people take a loan!

For Traveling

Travel constantly features among the top 5 reasons that people are willing to spend. Quite a few go the extra mile to visit their dream destination and get stuck in a financial mess in that process.  When you travel, the government sees no reason to exempt the interest charge levied on the loan that you use for travel. However, one cannot say the same cannot be in case of a home loan as a home is an asset rather than a liability.

For A Wedding

Most people think of taking out a loan for their wedding as they want it to be as good as they had imagined. However, wedding loans are one of the few loans where the interest rates are sky-high. It is always safer to save up for a wedding than take out a loan as you would only end up paying more than you had spent.

For maintaining an expensive lifestyle

More often than not, we see people who splurge money on exotic items and indulgences. For instance, dine at an expensive place, buying expensive gadgets, taking exotic vacations, etc. In most cases, we cannot be sure if they do it from the money they were saving up for this or had to borrow to maintain a lifestyle.

Some people even go as far as taking personal loans due to peer pressure and simply because of easy access to loans. They will have a long term negative impact on one’s credit score. So, one must be careful while spending on non-essential luxurious goods or services.

For Repaying Another Loan

Taking a loan means to have a debt. And you cannot use one debt to pay off another. By doing that, you will find yourself in a big vicious circle of a debt trap. With the help of a decent emergency fund, you will diminish the need to take a loan for repayment of another loan significantly. If you keep track of your finances and avoid unnecessary spending, you will not face a situation where you have to take a loan.

For High Pre-Payment Charges and Processing Fees

In the case of personal loans, the pre-payment charges and the processing fees are very high. It is because the institution can loan you the money without collateral. And they have to service the loan at any cost. Or else it may fall under the category of bad debts for the institution. In rare cases, these charges amount to a certain percentage of the loan one takes.

Conclusion

In place of personal loans, there are so many other ways by which one can save take money from institutions. Gold loan is one of the easiest, safest, quickest. It falls under the category of secured loans as the institution is giving you money against collateral. But before taking out a loan, our finances must be in place to have a secure lifestyle.

One of the easier ways of savings is to open a recurring deposit in smaller amounts, which can one day save up to become a huge amount. After this, you can transfer the amount in the recurring deposit into a  fixed deposit.

Although they offer paltry interest rates, the money is secure and safe. You can also withdraw it at any time, unlike SIPs, which may take 3-5 days until the amount reflected in your bank account. If all of us can save, the need for personal loans will decrease, and we will be safely away from dangerously high-interest rates.