Personal loans are easier to obtain provided you meet the eligibility criteria along with the right documents on hand. While personal loans offer the breather you desperately look for, it would do well to take sometime to consider if it is the right way out. It is true that additional funds might make you comfortable but you need to remember it is still a loan that has to be repaid from your income or savings. Hence, it is essential to know when the right time for personal loan is and when you should not seek personal loan. Here are some suggestions to help you with the assessment.
When It is Right To Apply For Personal Loan
Here are some reasons that justify your personal loan application.
Urgency: When you are in urgent need of funds to pay a bill or settle a debt that could not be postponed, you might opt for personal loan. Since personal loan involves minimum documentation, the processing of loan is quicker. Sanctioning personal loan does not involve collateral and hence, it is the right loan type for your urgent needs.
Best Alternative: Personal loan is the best option if you end up saving some amount by going for it. Work out the interest rate for personal loan, how much you get to pay in whole and compare it with whatever loans you have on hand. If personal loan is cheaper and helps in saving some money in the long run or if it offers better comfort than your current position, you may go for personal loans.
Wise Investment: This is yet another factor that could favor seeking personal loan. If you intend to buy an asset, which has a very good appreciation, you might opt for personal loan to buy the asset. However, you need to calculate to ensure if the asset appreciation is promising enough to overlook the higher interest on personal loan.
When It is Wrong To Apply For Personal Loan
There are certain situations, which could be wrong triggers to seek personal loans. Here is a quick overview of some factors that should be considered while seeking personal loans.
Don’t Test Drive With Personal Loan: Never consider buying a car with your personal loan. Go for a car loan instead, which would be tailor-made to suit your purpose. While personal loans can be used for any purpose, it is prudent to avoid certain purchases using personal loans as you might land in an undesirable situation.
Strict ‘No’ To Speculation: Stock market could promise you quick profits but never go for personal loan to invest in stock. You could lose your investment and this would mean that you would have a loan on hand with higher interest to repay.
When Wallet Weight Is Your Concern: This definitely should not be your reason for seeking personal loan. When your personal loan does not have a justifiable reason, it is better not to go for the loan. Having cash flow might sound great but obtaining personal loan for the same would only mean that you have negative cash flow and not a positive, steady cash flow.
Never On An Assumption: Never opt for personal loan on an assumption that you will have a hike in your salary to make comfortable repayment of personal loan. You might or might not get a hike or it could not be the expected amount. Take into account your current financial status only when you look for personal loan. While the possible hike may be encouraging, it should not be a deciding factor in personal loan application.
Personal loans are meant to steer you clear off financial crisis. You need to handle personal loans well so that you could enjoy a good credit score, which might help you during future needs.