There are things that we cannot prepare for. Our savings might fall short to help us finance a sudden need that we weren't prepared for. A simple way to deal with such circumstances is by getting a personal loan.
It is a much better option compared to using up the credit limit of your card that comes with sky-high interest rates. However, there is some level of risk involved with personal loans as well. In this article, we will discuss the major risks of taking a personal loan.
Inability to pay it off
When you take a personal loan, it is important to plan out a way to pay it off in time. The SBI personal loan generally has a low-interest rate; however, if you miss out on paying an installment within the due date, it might cost you a spiked-up interest rate. Thus, be very judicial in managing the income and expenditure, and always keep enough fortune to pay the dues in time.
If you do not pay the dues timely, it can have a damaging impact on the credit score. This will result in difficulties in getting a loan in the future. Moreover, loan defaulters can also face legal and financial actions.
Cutting off the chances of getting another loan
If you have taken a loan and it is still ongoing, you might face difficulties in getting another loan. There are situations when you take a loan to cover up one of your financial needs, and before you pay it off completely, you encounter another financial need. The lenders will not give you a loan if you have a low debt-to-income ratio. Thus, it is advised, never to burden yourself with unnecessary loans.
Interest rates
The personal loan interest rates can vary from lender to lender. There are chances that you might come across a lender who is offering a loan that has a much higher interest rate than renowned banks like SBI or HDFC. It is vital to do a bit of research about interest rates and other charges involved in processing a loan. Also, do not get confused with APR comparisons. Annual percentage rates can be manipulated. The better parameters to compare the loans are going through all kinds of charges and the overall money you will have to pay during the life of the loan.
Final Takeaway
Personal loans can be an easy way to deal with an unforeseen financial situation. However, it would help if you planned out your cash to pay it off within the due dates. Also, there are many lenders in the market. Thus, you should always do some homework about the interest rates, charges, and fees to get the lent money transferred to your account.
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