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Is personal loan good or bad?

Rajiv Raj | 16 Dec, 2014  | Follow Author | Add to my Favourites 
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We Indians hate personal loans. Before you demonise it with a set of Dracula teeth and evil horns, think again. It is not always a bad option. They come with some benefits too. To help you make an informed decision, we decided to highlight the positives about personal loan before you dismiss it as an option when you are in need of funds.


When we are talking to our customers to resolve their issues about their Cibil credit score, we notice that there is a lot of misconception about personal loans. When used well, it can actually resolve a lot of issues including a financial crunch. Hence, we decided to put the facts together to educate about personal loan.

Following are the ways in which a personal loan can be beneficial:

Save money:

Before you jump to conclusion that it does not help in saving money, let me first clear the air. In some cases it does help. If you are badly in need of funds and considering a credit card withdrawal or looking to swipe your credit card and is doubtful about being able to pay up the entire amount in the coming billing cycle, check with your bank if you are eligible for a personal loan Some banks have pre-approved personal loans for good customers which makes the loan processing quicker. Credit cards and personal loans are both unsecured loans and comparatively easy to avail – however personal loans are way cheaper. You will pay at least 36 per cent on your credit card as compared to 14-16 per cent on a personal loan.  Also, Indian economy is witnessing risk-based lending. To put it in simple words, if you have a higher Cibil credit score, you stand a chance to get loans at a lower interest rate and stand a better chance to negotiate better credit terms and conditions. Many banks and credit institutions offer added benefits like waiver in processing fee and speedier access to credit for consumers with a Cibil score above 750 (ranges between 300-900).

Break the debt cycle:

Have you ever paid the minimum amount due on your credit card bill thinking that you will pay off the remaining amount next month entirely and find that you are still carrying the debt months after that? If you take a close look at your statements and calculate the amount you paid as interest on this amount and compare it with the amount you would have had to pay as interest on the personal loan, which can be availed by doing a balance transfer of your credit, the latter would have worked out cheaper. Credit card dues attract an interest rate of 36 – 48 per cent, where as if you do a balance transfer of your credit, which will be treated as a personal loan against credit card, you stand to get it at the rate of 18 per cent interest per annum – little more expensive then taking a fresh personal loan, still works out cheaper than. This repayment can be made in the form of EMIs, which is an added benefit. So, be a smart person, avail a balance transfer on your credit card to a personal loan to break high interest choking cycle and become debt free.

Boost your Cibil score:

Your Cibil score is calculated on the basis of many factors such as regular bill payments, credit usage, number of enquiries, age and a good credit mix. We always advice our customers have a good mix of credit. So if you have only credit card and just because you take a personal loan, your score wont dip. In fact, if you take a personal loan and repay it on time, it will help you improve your Cibil score.


About Rajiv Raj

Rajiv Raj is a Co-founder and Director at He is a credit expert with over 10 years’ experience in the personal finance and consumer banking industry and another 7 years in the credit bureau sector. He was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL) in 2005 and moved on to help UK based Experian Group to set up Experian Credit Information Company of India Private Limited (ECICI) in 2008. He can be contacted at [email protected]

For more information, please contact [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. The author does not accept any liability whatsoever arising from the use of any of the above contents.

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