5 bad reasons to take out a loan

Bombay: Did you know that personal loans are one of the most expensive loans? Usually, the interest rate on personal loans varies between 12% and 20% per year. Considering that this is a unsecured loan, where you don’t need to provide collateral, the interest rate will be higher compared to a secured loan such as home loans. When you have urgent needs such as medical bills and you have no other options, it is okay to go for a personal loan. However, taking a loan to meet lifestyle needs and aspirations are totally wrong reasons. Here are some reasons why you shouldn’t take out a loan.

To meet your 80C investment needs

If you take out a loan to invest in 80C instruments because you don’t have the required lump sum at the end of the year, you should stop doing it. “In January, February and March, there is always a high demand (for loans). Ideally, a person should save each month to meet their 80 ° C requirement. But most people do it at the last minute. When HR starts asking for proof of investment, people end up plans to invest. Most do not have a lump sum and therefore take a loan to invest in 80C for tax benefits of our platform, ”said Gaurav Chopra, Founder of Indianalends.com, a leading technology company. To avoid entering this cycle, start investing early in the exercise itself.

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To go on vacation or to finance your wedding

Travel remains at the top of the bucket list for most people. Now vacations are expensive and can also be planned. However, if you take out a vacation loan, your overall cost will increase as well. “The problem with a personal loan is that the loan has to be repaid no matter what, which makes your overall finances less flexible to deal with sudden changes in your financial situation. Moreover, since these are often not bound by assets such as guarantees, they are expensive. Even the government doesn’t think a personal loan is a good idea, so they don’t give you any tax relief on interest charges, unlike a home loan, ”said Shyam Sunder, Managing Director of Peakalpha Investment Services Pvt . Ltd. Likewise, if you are planning your wedding, you should save for it instead of going for a loan.

To maintain an expensive lifestyle

Do you like having expensive gadgets, high-end phones, and dining in expensive restaurants on a regular basis? If you can’t afford it and end up buying expensive things with loans, this is not the right financial approach.

“These are big, nonessential expenses that can be made when a person has the money for the same. People end up spending for these lifestyle expenses due to peer pressure and easy access to personal loans. You have to be careful with these loans as they are unsecured and therefore have a negative impact on your credit score, ”said Mrin Agarwal, Founder of Finsafe India Pvt. Ltd. “The worst reason is to take out a loan to cover an expense that you should never take out. You shouldn’t take out loans for extravagant expenses, which are discretionary in nature,” Sunder said.

To repay existing loans

If you have one loan and you can’t pay it back, you shouldn’t take another one. This behavior can put you in a debt trap. “Ideally if you have a emergency fund, the need for personal loan can be reduced to a greater extent. But if you fall into a trap like credit card rollover, you can use a personal loan to get out of the trap, ”said Melvin Joseph, founder of Mumbai-based Finvin Financial Planners. Therefore, there is an exception in this case. If you have an expensive loan and have the option of converting it to a loan with a cheaper interest rate, you should do so.

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