Taking a personal loan is not wrong but taking a loan for the wrong reason can push you into trouble. If your income is sufficient to repay the loan, then you are qualified to get a personal loan. Before approving your loan application, the bank checks your income, job details, credit score, ability to repay the debt, and your financial records. Personal loan is an unsecured loan, so there is no need to keep any asset as collateral.
Due to being an unsecured loan, the interest rates of personal loans are much higher than home loans, car loans, and loans against securities which are secured loans… according to the websites of various banks, the interest rate of State Bank of India’s personal loan is between 11.05% to 14.05%. Bank of Baroda’s interest rate is between 10.35% to 18.25%, while Punjab National Bank’s personal loan interest rate is between 11.40% to 16.95%.The biggest private bank HDFC Bank charges from 10.50% to 24% and ICICI Bank takes between 10.50% to 16%.
In addition to interest, there are many other charges that you should know about… some of these are loan processing fees, EMI bounce charges, pre-payment charges, foreclosure charges, and GST on loan processing process and prepayment.
Despite high interest rates and charges that we have discussed, personal loans can be taken in some situations especially when you need urgent money. There is less documentation involved. The loan gets approved quickly. However, there are also various types of situations when personal loans should not be taken.
Often when you spend, you don’t think about how you will make up for it. When you spend more money, it becomes difficult to compensate for it all at once. So you choose the option of EMI. Many people take loans for purchase of expensive mobiles, shopping, or travelling. These things are not your requirement but your hobby. Avoid taking personal loans for such purposes. It is better to save money every month and spend money on your hobby only when you have enough money.
Many people take personal loans for investment in the stock market, or for some suspicious scheme or some other work where the risk is quite high. In such a situation, if your investment gives bad returns, the money gets stuck or is lost, then you can end up in a big financial crisis.
The interest rate of personal loan is higher than secured loan. If the credit score is less than 600, financial experts advise against taking personal loans, because in such a situation, you can be charged higher interest. You can also default on a loan. Penalty will also be levied for delay in payment of loan EMIs. So, before applying for a loan, you should repay your existing loan and look to improve your credit score.
Many times, in the heat of emotions, you take a personal loan to help others. This is a big mistake. If the person for whom you have taken the loan does not pay the EMI, then the burden of the loan will fall on you because you have taken the loan, it is your responsibility that the loan is paid back. If you fail to repay the loan, your credit score will be affected. Therefore, take a personal loan only for meeting your own requirements, not for others.
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