Personal Loans: To take or not to take?
It is easy for me to say ‘you should not take personal loans, because I have not taken’.
It is so foolish too say do not borrow. Most people are borrowing out of compulsion, not love for the bank!!
Nobody borrows if they can live without that expense. However people do borrow, and when I spoke to a few of the kids who had borrowed and a couple of bankers…here is what I got as the reasons for borrowing (and I am not including a boy who took a personal loan of Rs. 25000 for getting a tatoo done – I am happy, the tatoo shop owner is a friend!!).
1. For a major repair in their vehicle: Vehicle meets with an accident (worse, vehicle belongs to the boss!) so the P L goes towards repair costs.
2. For a medical emergency: actually could be any emergency, but 3 people said medical emergency. The medical emergency could happen to self, friend, parents, sibling,….does not matter.
3. To repay more pressing loans: if they have borrowed from some friend, relative or a money lender who can press them hard, then the bank P L becomes necessary to repay the original loan.
4. To meet expenses arising out of death: Some people spend a lot on death related ceremonies and have no clue from where to meet those expenses, so immediately it is a P L.
5. To buy a luxury item – could be a plasma tv, a vacation, a family trip to ‘native place’…literally anything.
6. For spending on a festival: Ganesh chathurthi for one! Or it could be to meet expenses related to marriage, child birth, …again anything! This need not be in their own house – it could be in a friends house too! Lots of trust!
I normally do not write about loans…but just read it a couple of times – do you see any NEED for a loan?
For things which you know, you do a SIP…for an emergency you insure. Tell me why do these people need to borrow?
JUST a little willingness to postpone consumption, a medical and life insurance, …..would actually mean,….no P L was necessary! Just a point of view….
Milind N
Absolutely Apt subra….Delayed Gratification is the key !
rohit
as learned from you -saving is for future expenses , so save as much as possible & ASAP also
but god forbid some instances are unavoidable
Sreekant
If only people realize that borrowing is simply spending tomorrow’s income (which is not fully certain) today, they would avoid most of the borrowings.
shinu
Subra Sir
Why not a PL @ 5.5% to invest in 8% FD 🙂
anush
but a PL is much beter than credit card borrowing. I know of one instance where my colleague borrowed 1 lakh on his credit card and paid it off over 2 years
prabe
@Shinu
PL @5.5% where do you live?
I would love to take PL if provided @5.5% p.a in current situation.
Where did you get that quote? i believe it might be P/M instead of P/A
pravin
“If only people realize that borrowing is simply spending tomorrow’s income (which is not fully certain) today, they would avoid most of the borrowings”
but why dont we apply the same standards to the govt?when they tax and distribute money to its vote banks and alleged victims of the market,arent they destroying capital as well?. air india gets bailed out again and again and the middle class is just fine with that?.or somewhere in bengal where “workers” are playing cards because the factory is shut down since 2004 but they still keep encashing their salaries?.it is time to stop the destruction of wealth
krish
Let me share my bit of dumb act. When stock market was booming during Y2K time, I had taken PL to invest in Equity.
I don’t have to eloborate the burnt finger story. Worse I have not learnt any lesson with the episode.
There were couple of times I took PL just because it is offered and the use of it was explored later. Bought laptop, repaired house, new furniture and all.
Thanksfully all is history and today my risk appetitie had come down drastically. When I look back, I realise that I was bold to take loan or investing without knowing much details. Straight logic, some may look utter stupid but everything gets balanced. As some one said, rich would always side with brave and bold.
vishal
People should take loans. If they don’t, how would banks make profit?. My Mutual Fund / SIP (which invests in banking sector) will not be much profitable. :p
shinu
@ prabe
Nri’s are getting the PL @ 2%-5.5% depending on their contry of residance. In india too the agricultural loans are one of the most misused… what is in the name right?
subra
of course if you get a loan at 5.5% for 10 years, and a bank which will take it as a fixed deposit for 10 years at 8%, you should take a Rs. 100 crore loan and put a Rs. 100 crore FD. Make sure that the bank accepting the deposit is solvent for 10 years.
If there is no foreclosure risk, currency risk, default risk, rating risk – such a deal would be possible. Only thing is such a perfect end to end deal WILL normally not be available.
Once upon a time a foreign bank borrowed from one branch of a psu bank and lent it to another branch of the same bank – sheer information arbitrage. How such a thing happened is a long story…but it did.
Now for you to spot an end to end deal like the one i mentioned is next to impossible, but the alert guy may spot it.
shinu
Subra sir
This is one path which many middle class NRI’s used which indeed helped them in forced saving and creating wealth in long term especially in the 90,s when the rate was very good. Was not my preffered way but prevailing rates did make me too rethink and act. Yes the risks you mentioned are the real ones but ( a 4 percent depreciation of rupee wiped out the expected savings for the year… :(. no regrets though.. )w/o taking some calculated risks what is the fun in playing with investment options.
I wish a bank will approve 1/100th of the amount you mentioned..:)
Regards