Can I Spend My Personal Loan on Anything?

Last Updated : Aug. 4, 2020, 1:16 p.m.

A personal loan is one of the most popular credit options available for people like you to meet your personal needs. Although most lenders don’t really ask the purpose for which you want to take a personal loan, the said credit is mostly utilized for travel, wedding, medical emergencies, debt consolidation and much more. The loan approval is dependent on your income and credit history. A higher income and a credit score of more than 750 will lead to more loan amount to meet your needs. How can a personal loan be a better option against its competing products when it comes to meeting various personal needs? Let’s find out in this post.

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Utility of a Personal Loan in Travel

Travelling, be it across India or overseas. can cost you a significant amount. From flight tickets to hotel fares and roaming within the city, you may need to spend a hefty amount. Yes, with travel packages around, the cost has come down, but remains quite a significant one. In case of inadequate savings, a personal loan can be the one you should go for. The maximum personal loan amount offered by the lenders ranges from INR 15 lakh-50 lakh, giving you enough to meet your expedition needs.

The other option is a credit card, but you may not be able to use it for hefty travel expenditures if your credit limit is not high. Even if it remains high, it is not advisable to use the credit card for such expenses. The bill might foot up much beyond your comfort.

You can even get a loan against shares, mutual funds and use it for travel. The best part is that the interest rate on these loans are lower than a personal loan. It might prompt you to take any of these loans. But the loan amount here will depend on the value of the pledged security and not your income and credit history like it is in the case of a personal loan. If the value of the pledged security is not much, the loan disbursal can be significantly lower. Plus, shares and mutual funds are best bets for wealth creation. And, if you default on a loan, you might lose out on these wealth-generating instruments. The fact that travel is more of a want than need does not make sense to pledge securities and get a loan against the same.

How Can a Personal Loan Make Your Wedding Experience Better?

Weddings are a glorious moment in anyone’s life. Families begin saving daily to ensure the wedding of their dear ones remains as special as it can be. But blame it on the inflation or the uncertain nature of life, most middle class families come short of meeting the requirements. For them, a personal loan can be a suitable option. Impressive personal loan amount offerings can make people avail of this credit option. Loan against mutual funds and shares can be considered here. But again, the loan amount may not meet your expectation if the pledged security drops in value, which can be the case given the volatility that these securities witness. However, there’s one more option apart from a personal loan when it comes to meeting the marriage expenses. What’s that? Well, a Employees’ Provident Fund can be one option you can also contemplate on. You must be seeing in your monthly salary slip the contribution made to your provident fund. As much as 50% of the EPF contribution can be allowed to withdraw. The best is that you don’t need to return it. The reason is pretty simple. It is not treated as a loan. But since they are more like retirement funds for you, deciding the withdrawal amount remains critical to your cause. Also, the withdrawal will make sense only when you have a significantly large EPF corpus. So when the time for marriage comes near, check the EPF balance and decide on it. As it’s said earlier that the EPF corpus is mainly for retirement purposes, don’t withdraw more than 20-30% of the corpus. If that can fulfill your purpose, you can cancel the idea of taking a personal loan. This way, you can eliminate the interest liability on you. But if that 20-30% is not enough, take a personal loan to cover the gap. The interest burden will reduce quite a bit.

How Can a Personal Loan Help You Deal with a Medical Emergency?

Let’s be told that the best option to deal with a medical emergency is health insurance. But if you don’t have that, will using a personal loan help you deal with such crunch times? Yes, they will! When faced with such situations, you require quick funds. And that is the forte of a personal loan. The amount is disbursed quickly to your account in about 3-4 days. In case you already have an existing relationship with the lender for long, you won’t even need to apply. Most likely, the lender will have a pre-approved personal loan offer for you. You just need to give a consent to the loan offer and the amount gets disbursed to your account instantly.

EPF balances can also be used here. But since you will require funds urgently, it may not be prudent to use EPF as the process can take a lot of time. However, in the case of a planned health expenditure, you can utilize EPF funds. Deciding the withdrawal amount holds the key here like the way it is explained in the case of marriage above.

If you are approved for a personal loan but you want to reduce the debt burden, you can use some of the EPF balances for the medical treatment. Withdrawal from the EPF account for medical treatment is restricted to basic salary and dearness allowance for the last 6 months or your share with interest, whichever is lower.

The Role of a Personal Loan in Debt Consolidation

Credit cards attract everyone to the core; impulsive spending has become more of a norm with this plastic instrument. Making spends by ignoring your capacity to pay off the dues later can hurt you big time. The rollover of outstanding credit card balance from one month to another adds on to your debt burden at an excruciating interest rate of 2.5%-3.5% per month. It goes up to 30%-45% a year, making you feel uncomfortable. In case you are facing such a situation, take a personal loan and wipe off the credit card immediately if you don’t have savings to do so. In return, you can pay a personal loan over a maximum of 5 years at a much lower rate of 10%-20% per annum on average.

Personal Loan and Its Role in Home Renovation

Giving your home a refreshing look may well be at the top of your agenda during the festivities. Thankfully, you have two vital options with you – Personal Loan and Home Loan. If you need home renovation funds urgently, go for a personal loan. However, if you can wait, maybe a home loan will be better as it is available at a much lower rate of 7%-8.50% per annum in the present times. The technical team will visit your property, check its construction and send a report to the lender based on which the latter can decide the loan amount for you. Not only that, even legal officers will do their own verification. You can get a home loan only when all these verifications are carried out successfully. Such verifications don’t happen in a personal loan.

But Where Should You Apply for a Personal Loan?

Given that a personal loan is granted without having to submit any security or collateral, the interest rate can be higher than secured loans such as loans against shares and mutual funds, etc. That’s why you should compare personal loan deals of different lenders and see which offers you the best offer. To help you do so, we have showcased personal loan details in the table below. Check it out!