Personal loans for certain purposes can impact your financial stability
Personal Loan: Personal loans are one of the easiest and fastest loans available today. Money comes into your account within minutes, without any documents.
But taking out a personal loan for every expense isn’t wise. In many cases, it can cause long-term damage to your financial health. Let’s understand the purposes for which you should absolutely avoid taking a personal loan.
The biggest mistake with personal loans is using them to purchase expensive gadgets, luxury items, furniture, high-end mobile phones, or upgraded electronics. The value of such items depreciates over time, while EMIs have to be paid for months.
For Weddings and Large Social Events: In India, people spend a lot of money on weddings. But taking a personal loan for a one-day event like a wedding can burden you with EMIs for years. After the wedding is over, many people find themselves under debt stress. Instead of taking a loan, it’s wiser to plan your spending, use your savings, or organize a smaller event.
For Travel or Vacations: Many social media influencers promote travel personal loans as a good idea. However, they are against financial discipline. Vacations are over, but EMIs continue for several months. Saving for a trip is always a better option.
To pay off old debts: Many people think that by taking out a large personal loan, they can pay off all their old, smaller debts. However, personal loans have very high interest rates, which further increase the total debt. Resolving debt with debt is almost always a bad strategy.
Investing in the stock market or crypto: This is the most risky move. The market fluctuates. If the market falls, your investment could also fall, and the EMIs will have to be paid anyway. This is a double whammy. Investing in a loan is never considered smart financial planning.
Gambling, Trading, or Quick Money Schemes: Many people think they will make huge profits by investing in quick money schemes. This rarely happens. The risk of losing money is high, and the EMIs on the loan keep increasing.
To increase their expenses: Many people take out loans just to show off or enhance their lifestyle. Such as car modifications, expensive clothes, or premium memberships at clubs or gyms. This creates an imbalance between your expenses and your income, and the EMI burden steadily increases.
Unnecessary emergency loans: Sometimes, people take loans for even small needs, considering them “emergencies.” For example, a new phone breaks down, or a home appliance suddenly breaks down. Such small needs can be addressed with better financial planning, an emergency fund, or savings.
