If you’re strapped for cash and need to meet urgent financial obligations, a personal loan can come in handy. However, amid the uncertain economic environment, is it a good choice? Well, not always.
Here are the top three reasons a COVID loan won’t prove beneficial for you.
1. If you’re taking a loan for a foreign vacation
At a time when people are cutting off discretionary expenses like OTT subscriptions and other nice-to-haves, should you be taking a loan to go on a vacation? Not to make you feel guilty, but you do need to rethink the situation here.
After the gruelling lockdowns, you do deserve a travel break. But not at the expense of turning your budget upside down. Instead, you can go on weekend getaways near your location and within your budget. If you can fund such a trip using a portion of your savings, there is no need to go into debt for a foreign one.
2. If you need funds for investment purposes
Yes, wealth creation is vital for the future, but at the expense of your present? Perhaps not. Many lenders have eased personal loan eligibility criteria, so you may be tempted. But hold fort, because we don’t know how the pandemic will pan out. You may even end up taking on unnecessary liability.
The problem is, you don’t know if your investments will yield good returns or when. You may not redeem your holdings when the markets are down and wait for the tide to rise again. But loan EMIs? They won’t wait.
Besides, you can take advantage of the pause facility for SIPs if going through a financial crunch. So you don’t have to liquidate the asset. This is better than taking out a loan to keep the instalments going.
3. If you have a low credit score
Lenders may have eased access to loans amid the financial crisis. But they haven’t let their guards down. In fact, they’re more cautious about giving out unsecured loans to borrowers. That means if you have a low credit score, somewhere below 600 on the Experian scale, you may not get good loan terms.
You will probably get a higher personal loan interest rate. So no matter how major the cash need is, unless you have the means to repay the loan EMIs on time, don’t take the loan.
Additional Read – Reasons Why Unsecured Personal Loans Are Popular
4. When taking a covid personal loan makes sense
Here are two situations where personal finance can help:
- When you have to pay hefty hospital bills and cannot get the required amount from relatives or funds. It can take some of the load off.
- If you have multiple debts to settle, you can use personal finance to consolidate all the loans into one for easy management.
In any case, try tapping into your savings corpus first. Maybe ask a relative or friend to help you out. Borrow a loan only if you’re in dire need of funds and cannot find another alternative.
If you need financial support, Tata Capital can help. Avail personal finance in a matter of minutes and say goodbye to cash shortage. To compute your loan costs beforehand, use our personal loan EMI calculator and get started today.