Personal loan: This festive season, if your expenses happen to spike so much so that your monthly income falls short of them, then what option would you have? One alternative would be to use your credit card, and the other to raise a personal loan.
It is quite acceptable to borrow money to meet a sudden jump in expenses which caught you unprepared.
There could be a newly-married couple in your network who you want to give a special Diwali gift to. Or else, it is the first Diwali of your cousin after he moved back to India. There could also be some off-site events that your colleagues are planning. Or else, there could be some other reason.
If you are also planning to raise a loan to meet your expenses, then you must keep in mind these points.
Personal loan: Keep in mind these points
I. Amount of loan: At the outset, you must make sure that the loan amount is not too high. And you must borrow only what is required. It is not recommended to borrow more than your shortfall.
II. Whether this is urgent? Another important point worth remembering is whether the loan is urgent. If not, you may drop the plan to borrow.
III. Can you use a credit card? Instead of raising a loan, if you could also use a credit card, then you should go for it. With a credit card, you could clear the bill within 45 days during the interest-free period without having to incur any interest or charges on it.
Kundan Shahi, Founder, Zavo (a loan repayments platform), says, “While it’s tempting to use credit cards or loans to manage these costs, it’s important to make thoughtful decisions. For smaller, short-term expenses, credit cards can be convenient, offering immediate purchasing power and rewards. However, it’s crucial to pay off the full balance within the billing cycle to avoid high interest rates. For larger purchases, a personal loan is often a better option”
IV. Is there an alternative? One more important point worth remembering is whether you have a choice to skip this expense. For instance, a holiday or an off-site meeting can be avoided if that leads to taking a loan.
V. Tenure of loan: The tenure of the loan should be a few months only. Since the festival comes every year, taking a loan for longer than one year is not advisable.
VI. Impact on financial goals: If you are planning to raise a car or home loan in the near future – say in Dec-Jan, or have some plans afoot to send your child for higher education, and the proposed loan is likely to have an adverse impact on your immediate financial goals, then you should also rethink it.
VII. Help from a friend: Sometimes, it is more convenient to simply borrow from a friend rather than take a loan and pay a high interest rate on it.
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