5 Things You Should NOT DO With Your Personal Loan
Five Things You Should Not Do With Your Personal Loan
Personal Loans are a quick and collateral-free option for individuals who need funds for various reasons.
At ICICI Bank, we offer Personal Loans with no end-use restrictions. You can use them to renovate your home, for a medical emergency, for an unforgettable wedding, for a dream vacation, for further education and so much more.
Be careful what you apply for
These are just a few examples of what you can do with a Personal Loan. However, it is important to note that loans should be used responsibly and always within your means. Before applying for a Personal Loan with us or any other institution, you should consider your present financial situation and estimate future repayment capability to ensure you can afford the loan. Furthermore, it's doubly important to choose a loan with favourable terms such as a low-interest rate, flexible repayment options and minimal processing fees.
Things you should not do with your personal loan
It is imperative that every borrower should use the loan responsibly and avoid certain practices that could lead to financial duress. This post discusses five things you should NOT do with your Personal Loan. We will also explain why going for the lowest interest rate is not always the ideal option for these loans, despite it being the most commonly sought-after feature. Let’s begin with what you should NOT do.
1. Do not use your Personal Loan for discretionary spending
One of the most common mistakes borrowers make with Personal Loans is using them for discretionary spending such as casual unplanned shopping sprees or dining out at exorbitantly priced places. While it can be quite tempting to use the loan to splurge on things you do not necessarily need, you must not forget that your Personal Loan has come with interest charges and other fees that add to the overall cost of what you have borrowed. Using a loan for discretionary spending can result in an unnecessarily larger debt burden that may be difficult to repay conveniently.
2. Do NOT take more than you need
Another mistake people make with Personal Loan is taking more than needed. This can happen when individuals don’t calculate what they need and get approval for a higher loan amount than expected or overestimate their ability to repay the loan. However, taking out more than you need will lead to you paying a larger interest amount on the money you didn’t need in the first place. Be realistic about your requirements and take out only what you need. Factor in everything to make your due calculations and use a free online Personal Loan EMI Calculator to calculate what you will have to repay in EMIs and for how long.
3. Do NOT miss payments or default on your loan
Missing payments or defaulting on a loan can invite unsavoury consequences such as a damaged credit score, collection calls, asset seizure and even legal action. It is fair to assume that you would not want to deal with any of these scenarios. This is why it is so important to make sure you will be able to afford the monthly payments before taking a Personal Loan. To ensure timely payment, set up automatic payments or reminders and if you are struggling to make payments, contact your lender to discuss your options. They will surely help you, as will we.
4. Do NOT consolidate high-interest debt without a plan
Many people consolidate high-interest debt using a Personal Loan that is indeed a smart financial move. This can help lower your overall interest rate and simplify your monthly payments through a single one. However, it is important to have a plan for how you will repay the consolidated loan, right? Simply consolidating debt without a clear repayment plan can result in a long, drawn-out debt repayment period and significantly higher costs.
5. Do NOT go for the lowest rate of interest without considering other factors
Naturally, it is understandable that people go for the lowest interest rate Personal Loan. However, it's important to note that the lowest interest rate doesn't always mean the best loan for your needs. For example, a loan with a low-interest rate may have a higher processing fee or more stringent repayment terms that might make it difficult for you to repay the loan. Considering all these factors, including the processing fee is important before choosing a loan.
Why going for the lowest rate of interest is not always a good idea for Personal Loans?
There are three reasons why opting for the lowest rate of interest for a Personal Loan may not be the best choice.
First, loans with the lowest interest rate invariably come with higher processing fees which can significantly increase the overall cost of your loan. This can make it less viable than a loan with a slightly higher interest rate but a lower processing fee.
Second, low interest rate loans can also come with stricter repayment terms that may not suit your financial situation. For example, some lenders may have you repay the loan within a shorter period which will mean high monthly payments. You must choose a loan that fits your financial needs and repayment capabilities.
Third, lower-interest loans may also have more stringent eligibility requirements. If you don't meet these requirements, you may not get approval or get it only for a smaller loan amount. This can be frustrating, especially if you urgently need funds.
Personal Loans can be a significantly helpful financial tool but it is always best to use them responsibly and avoid certain practices that can lead to financial distress. To reiterate, you should not use it for discretionary spending, take out more than you need, miss payments or default on your loan, consolidate high-interest debt without a plan or simply go for the lowest interest rate available without considering other factors.
By choosing a loan that meets your financial needs and is within your repayment capabilities, you can use Personal Loans to achieve your financial goals without worry.
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