Here why it’s best to stay away from these loans than fall into debt trap

• Taking a loan to boost your lifestyle with expensive gadgets, cars, traveling and eclectic goods have high chances of hurting your finances.
• The interest rate for these ranges between 10-24%, which is way higher than home loans, which attract interest rates of 7-8%.
• Here are a few interesting points on personal loans and why it is best to stay away from them.

Do you like having high-end phones, expensive gadgets and feel good about it among the crowd even if you can’t afford it? If yes, then it is the wrong way to go about your finances.

It goes without saying that taking a loan to buy something, pay debts or expand business is a risk with someone else’s money. While borrowing is not a bad thing today, there are certain loans like personal loans that could hurt your finances.

Usually, interest rates on personal loans like buying a car, gadget, electronics are higher than other secured loans. The interest rate for these ranges between 10-24%, which is way higher than home loans, which attract interest rates of 7-8%.

This is because personal loans do not require collateral, thereby making it riskier for the lenders, which is why interest rates are usually higher on personal loans.

With the growing fintech and investment sector, there are many ways to borrow money from a bank, an investor or a company.

Here’s why you should stay away from these personal loans
Money Insider takes a deep dive into the world-changing potential of financial awareness. It brings together the top young voices from the industry which is educating millions of millennials, Gen Z and more.

One such financial influencer is Raj Shamani, who is a digital content creator, entrepreneur, podcaster and investor. Founder of Shamani Industries, Raj Shamani is a business content creator and public speaker with 1 million followers on Instagram, 146k fans on Twitter and 272k subscribers on YouTube.

Shamani is a very vocal personality on social media platforms expressing his views regarding the growing trends among millennials in terms of finances, relationship, human nature and so on.

Taking a loan to boost your lifestyle with expensive gadgets, cars, traveling and eclectic goods have high chances of hurting your finances. Meanwhile, borrowing money for your business or emergency needs will help you make more money and get you out of a bad situation.

Shamani has shared a few interesting points on personal loans and why it is best to stay away from them.

He believes that what you should take a loan for is more important than when you should take a loan.

He splits loans among two types:

• Loan for asset development.
• Loan for liability development.

“So, everytime you are about to take a loan from the bank, think about ‘Am I taking this loan to build an asset?’. Meaning is this loan for my business, expanding a new asset or something, which is gonna help me make more money in the future,” he explains in a short video. If this is the case, you might not have to worry too much.

However, if a loan is to maintain an expensive lifestyle – like buying a new gadget or a car, then it is a loan for liability and these are the kind of loans you should stay away from.

This is because there are several risks in taking a personal loan.

• Not being able to make repayments on time.
• If you skip a payment, your credit score will be impacted.
• With a low credit score, no bank or financial institution will lend you money easily in the future even in emergency situations.
• High loan amount can eat up your monthly income.

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