Did you know that CIBIL ranks each individual and assigns a score on the basis of his/her credit and repayment history? You can check this score from the official website of CIBIL. This score is taken into account by banks when you apply for a loan.

Paying your dues a week later might seem harmless to you, but it can affect your credit score and consequently your chances of getting a loan in future.

The credit score ranges from 300 to 900 and the closer the score is to 900, the better your creditworthiness is. A score of 750+ is considered to be an indication of a healthy credit history and repayment ability. Your credit score is also affected by your credit card dues. Paying your dues a week later might seem harmless to you, but it can affect your credit score and consequently your chances of getting a loan in future.

Use a Credit Card or Borrow Funds from a Bank?

Swiping a credit card might be extremely convenient, but it is certainly not a profitable decision. Credit card dues attract some of the highest interest rates, which can at times go as high as 25%. So, if you are shopping for a pair of Nike shoes and are not carrying enough cash, you can use your credit card to pay for it. However, if the expense is a bigger one and you need a chunk of money, it is a wiser decision to opt for a personal loan. This is a much cheaper option that gives you easy access to funds.

Things to Take a Personal Loan for

This source of fund does not require any collateral. Unlike other types of credit where you have to disclose the purpose of borrowing, personal loans come with no such terms and conditions, according to the official website of Fullerton. Although this option gives you the flexibility of using the funds for anything you desire, the decision should be made wisely. It does not need a financial expert to tell us that borrowed funds should not be used for purposes of consumption (like throwing a lavish party for your spouse!). Rather, such funds should be used for purposes that are likely to yield good results. The results may be tangible or intangible.

Here are some of ways you can use the money wisely:

  1. Home Improvement: As your house becomes older, some changes become essential. These can be quite expensive, like changing the wiring, re-modelling the home to prevent seepage, installing a fire prevention system, etc. On the other hand, you may have just purchased a house and could be considering making changes to increase its value before selling it.
  2. Child’s Education: This is by far the best investment, as it brightens the future of your most loves ones! While education loans are available, these do not fund school education. Here’s where a personal loan comes to the rescue. You can finance the initial admission fee and maybe even the yearly tuition and hostel fees, and pay back gradually.
  3. Medical Bills: Most health insurance plans cover hospitalization bills, but doctor visits, medicine costs and transportation costs can burn a hole in your pocket. In such situations, you can consider taking a personal loan.
  4. Vacation: Okay, this may seem like consumption; but a great vacation can actually boost your productivity when you return to work. If you are planning on taking your family for a fulfilled overseas vacation, it can easily cost you a few lakhs of rupees.
  5. Wedding: India is known for its grand weddings, with the industry being valued at Rs.100,000 crores in 2015, according to an article in Business Insider. Considering this to be a onetime affair, you would certainly want to put up a nice show. The loan amount can help finance jewellery, bridal trousseau and wedding arrangements.

While taking a personal loan, you must assess the type of interest rate that is applied as well as the time-frame for which you require the money.

Posted by The Indian Economist