5 Reasons Why You May Regret Availing of a Personal Loan

However, in many situations, a personal loan can go wrong and make you regret availing of it. How do you know whether you will regret availing of a personal loan? This article enumerates crucial questions you should ask yourself before taking a personal loan that answers whether you will regret availing of a personal loan.

1. Do I really need to borrow?

Since a personal loan can be availed to buy any products and services, many people tend to take it for the instant gratification they receive from buying things that they may not even need. Taking a personal loan to finance a vacation, buy an expensive gadget, etc., can turn out to be a bad idea in the future as it is not advisable to splurge with borrowed money.

Frequently opting for personal loans to buy luxurious items and pay credit card bills can put you in a debt trap. Such expenses may give you pleasure for a few days or weeks, and you will end up paying the personal loan EMIs for years. This will make you regret availing of a personal loan.

However, if you urgently need funds for a medical emergency or a genuine financial requirement that cannot be postponed, it may make sense to avail of a personal loan.

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2. Will I be able to make timely payments?

While applying for a loan, it is necessary to assess your loan repayment capacity. Some borrowers opt for a loan just because they are eligible for the instant loan or borrow unnecessarily high amounts without checking their repayment capacity.

If your income is insufficient to pay the loan EMIs or you already have a high debt-to-income ratio, then you should think twice before opting for any loan.

If you are unable to pay the EMIs on the respective due dates, the lenders will charge you late payment fees. The unpaid EMIs and late payment fees can accumulate debt that becomes challenging to repay. Furthermore, not paying the EMI on or before the due date can negatively impact your credit score. Struggling to make timely repayments in future will make sure you regret taking a personal loan.

3. Do I have a secure financial future?

While assessing your repayment capacity, it is also necessary to assess your future repayment capacity. You might be able to afford the EMIs now, but if your future responsibilities and obligations rise, you might not be able to afford the high EMIs.

Generally, individuals borrow carelessly when they are young and single. But if the loan is for a longer duration of 3+ years and they start a family before the end of the loan tenure, their responsibilities and fixed expenses increase considerably, which makes them regret borrowing money for a long duration.

4. Have I done thorough research?

With many banks and Non-Banking Financial Companies (NBFCs) offering personal loans, the market has become competitive. Before applying for a personal loan with the first lender you come across, it is a good idea to do thorough research and compare different lenders.

A quick google search can help you find the lender that offers you an affordable interest rate and processing fee. Or, you can easily compare lenders on a single financial website that offers personal loan comparison. However, checking the latest fees and charges on the lender's official website is advisable, as some financial websites might not be up to date.

Doing thorough research will ensure you do not miss out on a better deal. However, make sure you only check or enquire for the loan with different lenders and do not apply with several lenders in a short duration. When you apply for a loan, the lender first checks your credit score. And multiple credit enquiries in a short duration can affect your credit score.

Not doing enough research will make you regret taking a personal loan as you may not find the best deal and end up with unfavourable loan terms, such as high interest rate, insufficient loan amount, high processing fee, etc.

5. Do I agree to all the terms and conditions?

Often, individuals compare different lenders only on the basis of interest rates and processing fees. However, each personal loan comes with different features and terms & conditions that a borrower must be aware of before availing of a loan.

Terms and conditions pertaining to pre-payment and foreclosure charges and a period after which it is permitted can significantly impact your finances. Some lenders charge considerably high pre-payment fees, so it may not make sense to opt for pre-payment even if you are financially capable of doing it.

Apart from different fees and charges, there are many more clauses you will come to know after reading the fine print, such as credit insurance, repayment conditions, etc. Not thoroughly reading and comparing the terms and conditions of different lenders before opting for a personal loan will result in regret of taking a loan because the terms and conditions might not be convenient for your repayment plan.

To conclude: 

A personal loan opted to fulfil your financial requirements that cannot be postponed could be a great financial tool. However, a personal loan availed without thorough research, comparison, and assessment of the needs and repayment capacity can make you regret borrowing. Therefore, it is crucial to be in control of the personal loan right from researching about it to repaying the complete dues.

Warm Regards,
Ketki Jadhav
Content Writer