5 Pros and Cons of Taking Personal Loans

5 Pros and Cons of Taking Personal Loans

 

A personal credit facility is easily available at an affordable rate of interest. Moreover, it is an unsecured loan, which means you do not have to use your personal asset as collateral.

Nonetheless, a personal credit facility entails interest costs and must be used prudently. Here are five reasons when availing such loan is advantageous.

  1. Repay high-cost debt

If you have huge credit card outstanding that is expensive, using a personal loan to repay the money is advisable. Compared to credit card finance charges, the interest on the personal credit facility is lower, which reduces your interest outflow.

  1. Medical emergency

Such a situation may arise without any warning. To ensure you or your loved one receives the best medical treatment; you may use a personal credit facility to overcome any liquidity crisis.

  1. Moving expenses

Moving to a new location is expensive. You will need to pay for several things like furniture, electronic appliances, and others. You may use such a loan to meet these expenses.

  1. Car repairs

In case of a car breakdown, the repair bill may be high. Avoiding such bills may be impossible in certain situations. A personal credit facility may be used to pay such bills.

  1. Renovation

If you need to renovate your home, using a personal credit facility may be beneficial.

However, there are several situations when availing personal loans may not be advantageous. Here are five such situations.

  1. Gambling

Gambling is illegal and you must never use such loans to pay for any debt you may have because of this activity.

  1. Stock market investing

While stock markets may deliver higher returns on investments, there is a huge risk to such investments. There is no guarantee and the risk of losing all your money is real. Therefore, stock market investing using a personal credit facility must be avoided.

  1. New business

Becoming an entrepreneur is an amazing experience. However, you must never avail of a loan to invest in a new business. This is because your business may not do as expected, which may make it difficult to repay the borrowed amount.

  1. Lending to relatives or friends

You must never apply for a loan on behalf of a relative or friend in case they are ineligible. In case your relative or friend misses a payment, the default will negatively impact your credit score. This may make it difficult for you to avail of a loan in the future or you may have to pay a higher interest rate due to a lower credit score.

  1. Illegal activities

There is no limitation on how to use the money borrowed as a personal credit facility. However, using the funds for any illegal activity may have huge negative repercussions.

The easy availability of such loans at competitive rates may be tempting. However, you must borrow only in case of absolute necessity. Moreover, evaluate the different options to choose the best facility.

Categories: Finance

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