When to use a personal loan and when to avoid it


Personal loans are short-term unsecured loans. There is no specific purpose attached to a personal loan. You can use it to meet any of your obligations whenever you are short of funds. So when you want to borrow a personal loan, it is very important to ask yourself why you need a loan.

You must be clear about the nature and need of borrowing the same. There are umpteen reasons to get a personal loan. Through this article, we have tried to present some key points as to when to use a personal loan and when to avoid it.

Where And When Personal Loans Can Be Used?

Medical emergencies

They are unexpected and can take a toll on your finances. Personal loans are the best option when it comes to medical expenses. Personal loans have a quick application and approval process. Many banks offer instant personal loans based on an existing relationship.

You can fix your loan tenure and repay in small instalments when things settle down. It is important to note that many financial institutions offered personal loans for Covid treatment. They are a safe choice in times of uncertainty.

Marriage and Festival expenses

Any celebration calls for extra spending. You don’t need to worry about exhausting all your savings. You can get a personal loan for funding your wedding or any kind of festival expenses.

The personal loan interest rate starts from 8% to 30%. With a good credit score and credit history, you can get personal loans for your wedding at attractive interest rates.


Personal loans are a great option for funding your dream career at home and abroad. They have lower interest rates than any informal funding and do not require any collateral. 


Your travel to dream destinations is made possible through travel loans. You need not worry about using your disposable income for travel expenses. You can take a personal loan and repay it at your convenient tenure.

Purchase of home equipment and furnishing

The expenditure on purchasing any asset is significant. Hence it is good to go for a personal loan when you cannot contribute the whole of the amount for acquiring the asset.

Gadgets and computers

With the unbelievable technological transformation happening in the world, it is so tempting to purchase updated gadgets and computers. Personal loans are offered to purchase high-value gadgets and computers as well.

Home or office renovation

You may have been postponing those repairs, interior decoration, and facelifts to your home or office because of funds. Personal loans are a great choice for any kind of home or office renovation as they are cheaper than term loans.

Debt consolidation or refinancing

If you are having multiple small loans, you can aggregate them into a single personal loan and pay them conveniently. This is called debt consolidation. It helps in avoiding payment of higher interest rates and charges.

Expenses To Avoid Spending Through A Personal Loan


Call it fun or entertainment gambling is addictive. It is also illegal to take a personal loan for gambling. You may end up losing money and get stuck in a vicious circle of borrowing. It is a punishable offence to borrow a loan for gambling.

Stock Market Investments

Any investment or savings must be done out of your surplus income. Borrowing money for using it in stock market trading is not a useful option at all.

You will be spending more in terms of the cost of the finance that you get. Also, the earnings from a stock market investment are not guaranteed and can’t match your personal loan EMI commitment.

Purchasing Jewellery

The principle we apply to stock market investments applies equally to the purchase of precious jewellery as well. It is not a good idea to borrow a personal loan for buying jewellery that is going to lie dormant in your locker.

There is beauty usage for precious ornaments but no material usage for finance. Besides, gold jewellery purchase is of high value. Getting a personal loan for purchasing gold, silver, or diamond is not a good option to look out for.

Utility payments and daily expenses

When things go unplanned in the middle of a month, it is fine to take a personal loan to meet important expenses like utility bill payments and other household expenses. But continuing this as a practice denotes poor financial discipline. You may end up in a debt trap.

Eligibility For A Personal Loan

  • The loan applicant must be a resident Indian of age between 21 years and 65 years. Some banks ask for a minimum age of 23 years.
  • The minimum net monthly income shall be Rs 15,000 for urban areas and Rs 10,000 for rural areas.
  • The applicant must be in regular employment, have at least one year of experience or have a regular source of income. 
  • Personal loans are available to self-employed individuals like doctors and chartered accountants as well.

Documentation For A Personal Loan

  • Proof of Identity – Aadhar, Voter ID, Driving licence, Passport
  • Proof of Address/Proof of address of office – Aadhar, Passport, Utility bills
  • Proof of continuity of business – Rental agreement, Bank statements
  • 2 Passport size photographs
  • Proof of Income
  • Individuals in regular employment – 3 months’ pay slip latest, 3 years’ Income Tax return
  • In the case of self-employed individuals – financial statements for 3 years, Income Tax returns of the past 3 years
  • If you joined employment or started your business just before a year, bank statements of the last 6 months.

Personal loans are collateral free. They are issued purely based on the credit score, credit history, and monthly income of an applicant. The amount you can get through a personal loan is smaller than term loans. Nevertheless, you should be regular in repaying your monthly personal loan instalments.

Though the lender does not have recourse to your personal assets, any default in personal loan payments can hamper your credit score severely. It becomes tougher to get further loans.

So it is advisable to go for personal loans for your expenses that are essential and simplify your life. Think before you leap, there are promises to keep.

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