How To Use A Personal Loan – The Smartest Way

personal loan

personal loan

Mostly, there are specific loans for various purposes like a home loan, car loan, business loan etc.

But there is another type of loan which does not have a defined a purpose: Personal Loan.

What is a Personal Loan? How to use a personal loan?

What is a personal loan? What is the difference between a personal loan and other loans? For what purpose is it used?

Wait, wait I’ll shortly get to all these questions which are probably gong ring-a-ring-a roses in your head!

A personal loan is a kind of unsecured loan i.e. a loan which does not require any sort of security or collateral. It is a loan which is taken by most individuals to fulfill their current financial needs.

Also, one has the flexibility to use the loan amount in any way he/she deems fit.

It can help one to provide for huge and sudden expenses like home repairs, car repairs, debt consolidation and what not.

How to use a personal loan? – Personal Loan v/s Credit Card Loan

I know you must be wondering that aren’t a personal loan and a credit card loan similar?

No, they aren’t.

Here is a detailed description about these two.

BASISPERSONAL LOANCREDIT CARD
Speed & DocumentationA personal loan requires some basic documents and usually takes at least 2-3 business days to come through.A credit card does not really require any documentation at the time of availing the credit and is an extremely fast method.
Security RequiredIt’s an unsecured loan and therefore, does not involve any collateral.It’s an unsecured loan and therefore, does not involve any collateral.
DurationA personal loan can be taken for a longer period of time.A credit card loan can be availed only for a short period of time.
Loan AmountWith a personal loan, one can avail a huge loan amount.Credit can be availed only for a small amount.
Interest  Rate Usually, personal loans demand a higher interest rate.Credit card loans usually have a low interest rate attached.
Interest Type*Reducing balance rate.Flat interest rate.

* In case of a reducing balance rate, interest is calculated on the left-over principal amount whereas in flat interest rate, interest is always calculated on the initial loan amount.

I hope now the difference between a personal loan and a credit card loan is clear. Once you are clear about what are your financing needs, you will be able to make a wise choice.

How to use a personal loan?

A personal loan can very smoothly prove to be the best or, the worst decision of your financial life. It all depends on how much amount you choose to borrow, how you plan to spend it and what is your repayment strategy.

You can very easily end up overspending and sending your bank accounts into a spiral. 

Here are some smart ways to use and not use a personal loan.

In case you borrow money through a personal loan, ensure that you use it the right way.

Learn How to use a personal loan by Consolidating Debt

It may happen that you end up with multiple high-interest debts at a certain point of life. If you have this kind of a situation in which multiple debts are stopping you from going ahead, it is a good idea to take a personal loan and consolidate all your debts into a single personal loan. Not only will this help you get rid of high-interest debts, but it will also make your life a lottt simpler.

Learn How to use a personal loan by Renovating your house with the capital

Renovating your home can prove to be an extremely costly affair. Redesigning even a single room can cost you anything between Rs.50,000 to Rs. 5,00,000. A personal loan gives you an opportunity to get hold of a large sum of money at once. After remodeling, you can then proceed with repaying the loan slowly.

How to use a personal loan by Paying for expensive home repairs using it

Leaking roof? Chipped flooring? Cracks in the walls?

Well, if you have come across any of these in your home recently, you must be anticipating a long bill.

A house is built up using several components like electrical, plumbing, water works, tiles and cement etc. and anything can go wrong anytime.

An unsecured loan will help you refurnish your house without a sudden financial burden. 

How to use a personal loan by Fixing your vehicle with it

Vehicle repairs can take a toll on your financial health. 

If your vehicle suddenly breaks down and the mechanic gives you a huge list of repairs, you can opt for a personal loan.

This personal loan will help you get back on the road without denting your financial car too much.

For a start-up

Starting a business is a huge decision both mentally and financially.

A personal loan can be utilized for funding the initial setup of a potentially profitable business.

As your business grows and goes beyond the break-even point into profit, you can start repaying your loan.

How not to use a personal loan?

While the use of a personal loan is dependent upon an individual’s own choice, it is not advisable to use a personal loan in certain ways:

Don’t use a personal loan to Pay for an exorbitant vacation

If you wish to go on a vacation which you can’t really afford, my advice is don’t. Paying for a vacation with a personal loan may appear to be a smart thought initially, yet let me tell the truth, you’ll regret paying installments for it later in life. 

Instead, you can plan your vacation to smart destinations which cost less.

Covering college education 

College and higher education is becoming increasingly expensive and burdensome. Along with parents, college students also have to make an effort to save money to provide for their own basic expenses.

College expenses are very burdensome. (Here’s how you can finance for college) You’ll have to provide for the tuition fees, accommodation expenses, food and electricity etc.

You must not consider taking up a personal finance loan for financing education. Instead, take up student loans which come with a lesser interest rate.

Purchasing a vehicle 

Purchasing a vehicle with a personal loan is not the worst thought but it isn’t the best thought as well. It will prove to be a much better decision if you purchase a vehicle with a car loan. A car loan carries a much lesser interest rate than a personal loan.

Gambling

Gambling is a big no. Taking up a personal loan to gamble is a big NO NO. Gambling is a zero-sum game. You stand a chance to win as much as of losing. Hence, on the off chance you lose, it’ll become very difficult to repay the loan.

Investing 

Investing is good for your financial health. However, taking up a personal loan for the sole purpose of investing is not a good option. While you stand a good chance of earning from investing, there is no guarantee of gain or loss. And if you are not able to grow your money through investing, taking up a personal loan will prove to be futile.

Is it advisable for you to get a personal loan?

A personal loan is unbelievably easy to apply for. But it can turn out to be dangerous if not used properly.

In the event that you take up the loan for an unadvised reason and don’t have a plan in place to pay it back, you will end up with a money mistake you’ll always, always regret.

Experts suggest that it only makes sense to take up a personal loan when you have a proper purpose for it along with a repayment plan.

Otherwise, you’ll be digging your own grave!

Take care!

What is a personal loan?

A personal loan is a kind of unsecured loan i.e. a loan which does not require any sort of security or collateral. It is a loan which is taken by most individuals to fulfill their current financial needs.
Also, one has the flexibility to use the loan amount in any way he/she deems fit.

How to use a personal loan?

Leaking roof? Chipped flooring? Cracks in the walls? An unsecured loan will help you refurnish your house without a sudden financial burden. It can also help you fix your vehicle or even fund your small startup!

How not to use a personal loan?

Don’t use a personal loan to Pay for an exorbitant vacation, Covering college education, Purchasing a vehicle, investing, gambling, purchasing an expensive depreciating asset such as a phone.


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