Ask Amitoj- The Loan Guru

This is 2nd in my series of articles on how to avoid Debt Traps. In the first one I had talked about how to use Credit cards wisely. I now switch my focus to the next most popular debt instrument- Personal Loans.

Personal Loans have seen a very rate of take-up till about 4-5 months back and this was the growth driver for most Retail banks.
What fuelled this growth for most banks was the numerous reasons for which a Personal Loan could be taken, which in turn meant that the target market was huge. Compare this with education loans, where the end-use is specified and the target market is restricted by the number of people who enter colleges/educational institutes- no such bottleneck for Personal Loans- which could be taken for Marriage, Shopping, Medical reasons etc etc.

If I again look back into the numerous cases of customers in debt trap (due to Personal Loans) , I find a pattern of avoidable cases wherein the customer took a Personal Loan when the same was not needed. I have hence drafted a checklist for all Personal Loan seekers- ask yourself these Qs

- Is the Personal Loan for an urgent cash requirement ?
- Will this cash be expensed or invested? If it is for an expense- do you have sustainable cash flows to repay the loan?
- Do you have an existing Personal Loan running? If yes, why do you need another loan?
- If the loan is for purchases, have you got the best deal on the item of purchase? Do you really need that item? - I know this might sound like too intrusive, but trust me most debt traps are self-created by our tendency to spend way above our repaying limit.

Other useful links for a Personal Loan applicant:
- Check out how much Personal Loan can you get ?