Personal Loan debt trap

5 Precautions to avoid your instant cash loan from becoming your very own debt trap


The dependence on debt has become a way of life with more people resorting to credit cards and personal loans to manage fiscal deficits in the short as well as long runs. The increase in purchasing power along with enhanced aspirations and living costs have contributed to this overall dependence on credit. Loans are not entirely undesirable and so one cannot completely shun the importance of loans as such. Any loan that helps build assets or enhance skills is considered good. The presence of a proper credit profile and a good history is very essential in getting new cash loans, as the creditworthiness of an individual is calculated based on these parameters.

Of the many kinds of loans available, personal loans are highly preferred for their simplicity and ease of approval. These instant personal loans are also highly flexible and can be used to manage a wide variety of financial needs. The unsecured nature of these loans that do not require any kind of asset or guarantor adds to their charm. There are obvious advantages and benefits, however, utilizing them without a proper repayment strategy can lead to your downfall. The debt trap of a personal loan can be easily avoided by keeping a few things in mind while availing the same.

Here’s how you can prevent your cash loan from becoming your debt trap

  1. Know your repayment capacity: Biting off more than you can chew is not advisable. Lenders are coming up with pre-approved loans and various offers which might tempt you into taking a loan for a higher amount or more than one cash loan. However, remember that these have to be repaid along with interest. So, do a careful study about your finances and borrow only if you can comfortably repay the same.
  2. Do not opt for multiple cash loans: There is a big bouquet of loan offers that are being given out by all financial institutions. Be careful about such offers and do not avail them simply because they are on offer. Check your financial standing and assess if you really require the loan. An ideal income to debt ratio is 25-30%, so do not borrow more than required.
  3. Select the repayment tenure wisely: The idea is to comfortably pay each month without disrupting the home budgets. A longer tenure means lesser EMIs each month while a shorter tenure means higher. On the other hand, a longer tenure means a bigger payout at the end of the loan tenure and vice versa. So, a perfectly balanced tenure that does not disrupt your home budget nor make you spend more on the loan is the best one to strive for.
  4. Carefully consider the other charges: Often when availing a loan only the interest rate and tenure is considered and other charges like processing fee, late payment charges, pre-payment, and part closure charges are not considered. The unstable nature of our lives has to be accounted for and any of these charges can make the payout considerably higher. So, do read the fine print and other related charges before finalizing your personal loan.
  5. Pay on time always: Delayed payments, as well as missed payments, can spell trouble for you. They not just add to the overall cost in the form of late payment charges and penalties but have a long-term effect on the credit rating as well. Timely payments ensure that the loan is paid out within the time-frame without any additional charges. A whopping 35% of your credit score is based on this single factor. Ensure timely payments for a stress-free personal loan.
  6. Why you should avoid delayed payments: Delayed payments impact your CIBIL scores, prompting other lenders to reject you. Interestingly enough, rejections also negatively impact your score, preventing you from getting access to credit. This factor can be a major contributor to driving you into unchartered debt traps.


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