Loan equates liability. However, some loans help save money as in personal loans. Many banks and financial institutions promise easy personal loans to their potential customers. People may borrow for several reasons including repayment of higher-interest loans or house remodeling or payment for business improvement.
One can also consider paying off credit card debt by taking a personal loan and then repaying the same. Paying interest on personal loans ensures less payout as interests within a predetermined period, thus, savings on finances. Also, tax benefits available on personal loans ensure further monetary savings. Personal loan interest rates vary depending on the financial institution you borrow from.
Saving Money Through Personal Loan
To meet the imminent need for cash or money, many financial institutions are now providing easy personal loan to their customers. The amount of loans may be as low as Rs. 50,000 to as high as Rs. 10,00,000*. Most of these loans are unsecured and can be applied through the lending institution’s website or mobile app of the potential lender. Though these loans can be availed at high-interest rates, taking these loans can help save your money in the following ways.
1. Debt Consolidation: You may have taken different kinds of loans including those on credit cards. Also, you may have defaulted on your credit card repayments that invite a lot of penalties. Loans taken on credit cards are available at roughly 20 percent interest rates that is considerably higher than interest on other kinds of debts or loans. Instead of repaying different kinds of loans at different points of time or shelling out money to pay interest on credit cards every month, it is ideal to take a personal loan and pay off all other loans with the loan amount. Personal loan interest rates vary from eight percent to 12 percent every month.
2. Meeting Sudden Need of Cash: You may be in sudden need of a big amount of cash to meet unforeseen expenditures. This may include the sudden urge to buy a pricey electronic gadget or pay for house remodeling. Financial platform lends money to their customers looking to restructure their houses affected by calamities. Approval of a personal loan application eases the sudden need for money as you find yourself in a better position to repay the loan amount in small installments over the entire loan tenure. Also, taking a personal loan is a cheaper option than availing loans on credit cards considering the higher interest rates involved in the latter.
3. Increasing Your Credit Score: The inability to repay your loan on time increases the risk of you being tagged as a defaulter, thus, affecting your Credit Score adversely. Also, some people reel under Credit Card debt after having reached the maximum credit limit of their cards. Borrowing from the Financial platform to repay the credit card debt helps as the liability is now repaid at lower interest rates within a fixed tenure. Besides, while seeking a personal loan, you get the opportunity to choose your kind of repayment plan depending on your current financial status. A sudden windfall in the near future allows you to prepay the amount sans any foreclosure charges. Borrowers may also choose between repaying the loan taken at a flat interest rate or reducing balance rate. Also, repayment of the entire loan amount helps improve the credit score.
4. Tax Benefits: Taking a personal loan from any financial institution does not involve tax benefits. However, if the loan is sought for making down payment towards the purchase or construction of a house, then one can claim a benefit to the tune of Rs. 2 lakhs under Section 24B of the Income Tax Act 1961. A personal loan sought for home improvement is eligible for deduction up to Rs. 1,50,000 under Section 80C of the Act. If you have taken a personal loan to invest in your business or further your business interests, then the interest you pay on your loan is eligible for a tax deduction, thus, reducing the tax liability. However, you must have all the necessary documents and loan receipts from the issuing financial platform to support your claim and avail of the tax benefits. These documents or receipts may include a loan sanction letter from the lending institution, expense vouchers, auditors’ report (if you are self-employed) and a bank certificate.
5. Freedom from Added Charges: Credit cardholders often grudge about how their credit card companies charge extra fees under the guise of providing better service or charge management fees to ensure better online experience. This adds to the mounting credit card debt, thus, making it difficult to repay such a high amount. Personal loans, available at moderate to high-interest charges, are still a cheaper option than credit card loans. Moreover, before agreeing to sign the loan agreement, one can find out if there are extra charges that would be added to the EMI in the long run. You have the choice to refrain from letting those charges being added to your loan amount, thus, relieving you of the burden of paying extra.
Hence, these are some of the common ways by which a person can save money.