It is easy for me to say ‘you should not take personal loans, because I have not taken’. It is so foolish to say do not borrow. Most people are borrowing out of compulsion, not love for the bank!!
Nobody borrows if they can live without that expense. However, people do borrow, and when I spoke to a few of the kids who had borrowed and a couple of bankers…here is what I got as the reasons for borrowing (and I am not including a boy who took a personal loan of R25,000 for getting a tattoo done – I am happy, the tattoo shop owner is a friend!!).
For a major repair in their vehicle: Vehicle meets with an accident (worse, vehicle belongs to the boss!) so Personal Loan goes towards repair costs. This could have been easily avoided by creating a decent size Emergency Fund –so that you could dip into that fund for this ‘vehicle emergency’.
For a medical emergency: Actually, it could be any emergency, but three people said medical emergency. The medical emergency could happen to self, friend, parents, sibling, …does not matter. This could have been avoided by having a sensible amount of medical insurance – basic, top-up, and super top-up. Medical insurance is more difficult to understand –be careful when you take medical insurance.
To repay more pressing loans: If they have borrowed from some friend, relative or a money lender who can press them hard, then the bank P L becomes necessary to repay the original loan. Clearly this loan happened because some expense was done without planning for it in advance – could be travel, or something which suddenly popped up!
To meet expenses arising out of death: Some people spend a lot on death related ceremonies and have no clue from where to meet those expenses, so immediately it is a Personal Loan. Sounds odd, but one should have the ability to say “Sorry, but I will not spend on certain events that I do not understand”.
To buy a luxury item – could be a plasma tv, a vacation, a family trip to native place…literally anything. This is such a wrong idea. Luxuries should always come from a surplus in the cash flow. Keep alert.
For spending on a festival: Ganesh Chaturthi for one! Or it could be to meet expenses related to marriage, childbirth, …again anything! This need not be in their own house – it could be in a friend’s house too! Lots of trust!
I normally do not write about loans…but just read it a couple of times – do you see any need for a loan? I keep getting offered loans ranging from R30,000 to R3 crore! I just said NO. Learn to control your needs to the amounts that you have.
For things which you know, you do a SIP…for an emergency you insure. Tell me why do these people need to borrow?
Just a little willingness to postpone consumption,medical and life insurance would actually mean, no PL was necessary! Just a point of view…