Emergencies can strike at any time, often bringing unexpected financial burdens that can overwhelm you.
Access to quick financial support is crucial, whether it’s a medical emergency, urgent home repairs, or sudden job loss. A Personal loan serves as a lifeline in these situations, offering quick access to funds when needed most.
This blog explores personal loans, their benefits, and how to use them wisely during emergencies.
A personal loan is a loan to borrow a specific amount from a bank or financial institution to address personal needs. The loan is then repaid through fixed monthly instalments (EMIs) over an agreed-upon period.
The borrowing is unsecured, i.e., without pledging an asset as collateral. The flexible nature of personal loans makes them well-suited for emergencies.
You can apply for an online personal loan or visit the financial institution’s branch. Upon submitting KYC documents and proof of income, the loan provider will check your creditworthiness and eligibility.
Approved loans generally get disbursed within 3-5 working days into your bank account. This addresses urgent money requirements compared to more extended processing for other loan types.
Reasons to Consider a Personal Loan for Emergencies
When life throws unexpected challenges your way, personal loans can provide the crucial financial support needed to navigate emergencies.
Personal loans help fund large unexpected medical bills like hospitalisation, surgery or critical illness treatment.
Many health insurance plans come with waiting periods, deductibles, or limits on claims for specific conditions. A personal loan ensures you or your family receive timely treatment without financial obstacles.
Urgent home repairs, such as fixing a major plumbing leak or roof damage due to weather events, can necessitate substantial expenses running into thousands.
Personal loans allow you to arrange funds for vital repair work at short notice and prevent further property damage.
3. Job Loss or Income Disruption
Personal loans can provide financial relief during cash shortages resulting from job loss or delays in expected income.
By supporting basic living expenses and EMI payments for existing loans during lean periods, personal loans provide financial relief and prevent reputation damage due to defaulting on commitments.
Personal loans offer flexibility to address varied urgent needs, such as emergency travel, replacing a failed vehicle, and legal fees, with minimal paperwork and faster disbursal of funds.
Key Benefits of Personal Loans
Personal loans offer a range of advantages that make them a versatile financial tool for various needs.
The approval and disbursal process for personal loans is much faster that for home, auto, etc. This allows for effectively meeting urgent needs.
2. No Collateral or Guarantor Needed
Being unsecured loans, personal loans do not require pledging assets or guarantors. This reduces risk for borrowers.
Many loan providers offer personalised interest rates on personal loans based on credit scores and income levels. Rates start at ~ 10% yearly, enabling affordable EMIs.
Responsibly paying personal loan EMIs on time helps boost your credit score, aiding loan approval chances in future.
Tips for Using Personal Loans Wisely
Using personal loans wisely is essential for maintaining financial health and achieving your goals.
1. Check Your Current Money Situation
First, understand your financial situation before taking out a personal loan.
Look at your job income, any other earnings, fixed home/car loan EMIs, costs on necessities, and savings to assess whether you can comfortably repay another loan’s EMIs.
2. Borrow Only What You Urgently Need
It’s tempting to borrow extra money but avoid this habit.
Stick to funding only genuine needs to avoid financial strain later on due to increased loan repayments. Focus on the requirement amount rather than what is made available.
3. Compare Multiple Financial Institutions
Do some research and shop around. Interest charges on personal loans vary significantly across banks and NBFCs.
Compare rates, fees and terms meticulously; even a 1% difference impacts the repayment burden.
4. Read the Terms and Conditions Clearly
Before accepting the loan, read all clauses in the legal contract cautiously so that aspects like late fees, foreclosure charges, interest resets, etc., are clearly understood upfront without any hidden surprises later.
Personal loans can be a valuable resource during emergencies, ensuring quick access to funds when necessary. However, it’s essential to weigh the benefits against the potential drawbacks and make informed decisions.
By assessing your financial situation, borrowing responsibly, and understanding the terms of your loan, you can effectively manage emergencies without falling into a cycle of debt.
