Is Loan Bad For Your Personal Finance?

Whether you get a business loan or a personal loan, loans come in very handy in managing and running your business, as well as managing your personal finance. While you might be able to pay back a business loan because you can earn a return on your investment, paying back your personal loan can be difficult.

Do You Have a Personal Loan? How to Payback Your Loan?

A personal loan is a loan you use for personal things like funding your medical expenses (in case you need a lot of money for your surgery), renovating your house (adding rooms, changing the roof, moving walls, etc.), buying personal things (furniture, home appliances, etc.), and to fund your personal expenses.

Personal loans come in very handy to finance your personal expenses. However, paying back your personal loan can be very difficult as you do not use the money to invest in a business, and you are not earning a return on your investment.

If you have a personal loan, you need to start saving money so that you can start paying the interest as well as some portion of the principal amount.

If you cannot save money, you need to cut your expenses. Start by cutting your unnecessary expenses, then look for ways to minimize your expenses, for instance cooking food at home can be cheaper than dining in a restaurant. You can also unsubscribe from the services that you do not use much, for instance, why should you subscribe to cable TV when you can get your daily dose of entertainment from the internet.

These are just a few examples.

Benefits of Getting a House Loan

You can get a loan for various purposes. Sometimes, when you get a loan to buy a house or buy a car, it is categorized as a house loan or auto loan, but these loans are basically personal loans.

When you get a house loan, you can not only use the money to buy a house but also renovate your house, or add a new story to your house. A House loan or mortgage is a popular loan type because it is a long-term loan (up to 25 years), has a comparatively lower interest, and loan processing is comparatively faster. Interestingly, you can use the same house or land that you are buying as collateral.

When you get a house loan and start living in your own house, you will save money on rent, but you will also have to pay the loan installments which might be bigger than the amount you paid as rent. However, there is one major benefit. When you are living in a rented home, it will never be yours, but when you continue to pay back your loan, in 20-25 years, you will become a house owner.

You can also rent your house or have paying guests in your house to generate income that you can use to pay back your loan.

Managing Personal Finance When You Have a Car Loan

You can get a loan to buy a car. Actually, buying a car through a bank loan is a common practice. That’s because a car loan has a low-interest rate, you don’t have to give collateral (your car will be used as collateral), and you can get up to 100 percent financing.

A lot of people buy cars through a bank loan. In fact, a car loan is one of the most common types of loans. When you have a car loan, you will have to pay monthly, or quarterly, interest on your loan and also some percentage of the principal amount.

When you buy a car, you don’t generate income from your car, in fact owning a car will increase your expenses because it is more expensive than using public transport. How do you manage your personal finance when you have a car loan?

A car is a luxury item, when you buy a luxury item through a bank loan, your income must be many times more than your expenses. Secondly, when you are getting a car loan, you should not have any outstanding loan, if you have an outstanding loan, clear the loan before getting a new loan.

Also try to buy an electric car, which will save you a lot of money on your gas bills.

First published on Trendri, in the author's name