With retail inflation easing to 2.82% in May. This is the lowest figure in over six years. Due to this development, several prominent banks are consistently slashing lending rates following policy rate cuts by the central bank. Borrowers on the other hand are also re-evaluating the strategic use of personal loans in times of financial strain and opportunity.
The real challenge hence in front of borrowers is to use the availed personal loans efficiently and effectively especially during such a volatile financial environment where inflation and the economic landscape is rapidly evolving. Time calls for prudence and sensible decision making.
Elaborating on the same, Sudhir Khot, Founder of Financial Fitness says,”A smart loan can ease money stress and restore your peace during financial turbulence. Though, if taken for the right reasons, a personal loan prepares you to face challenges and not pressure you further.”
He further added, “One should always remember, a loan is a double-edged sword and it demands discipline and wise handling. Used thoughtfully, personal loans can create valuable financial breathing room and stability for credibility.”
Therefore, keeping the above factors in mind, here’s how to make personal loans work smarter for you.
1. Build a financial buffer during emergencies
Emergencies such as medical bills, job losses, financial reverses along with other similar economic problems can result in completely derailing the budgets. A personal loan in such cases helps in filling these gaps without draining long term savings or even breaking of fixed deposits.
As these loans are mostly unsecured in nature, they are distributed quickly. Generally within 24 to 48 hours of application approval. They also offer predictable EMIs if the entire loan is planned in a systematic manner.
2. Lock in low interest while rates are falling
Due to the recent repo rate reduction by RBI banks such as State Bank of India (SBI) along with others have trimmed personal loan rates by up to 50 basis points. That is why borrowing has become cheaper in the nation. In such a case, individuals who have a reputable credit score can look to use this opportunity to refinance existing debt or plan a necessary purchase at a lower borrowing cost.
3. Consolidate expensive debt
Managing several high interest loans and credit cards is never easy. That is why consolidating them into a single personal loan helps in streamlining the entire repayment process and reduces overall interest outgo. Due to the same with fixed repayment terms it helps to avoid the compounding trap of revolving debt even more so during inflationary periods.
4. Finance essential home improvements
When inflation is continuously rising in such cases the cost of construction and materials also rises. This can delay home repairs. In such cases using a strategically availed personal loan on friendly interest rates for renovations, plumbing, painting, roofing work can add immense value to your property while avoiding withdrawal from your emergency fund corpus.
5. Avoid using loans for lifestyle expenses
It is important to acknowledge the fact that India’s private banks are facing elevated defaults on small and personal loans. The gross bad loan ratios rose to 1.42–4.7% in Q4 2024. This trend is likely to persist currently, though tighter lending norms and rural demand recovery may help stabilize asset quality.
To combat the same experts across various sectors have repeatedly warned against using personal loans for gadgets, weddings or luxury travel. It is crucial to keep in mind that reckless borrowing and care-free expenditure can worsen financial stability. That is why personal loans should primarily be used for essential needs such as health, emergencies, income protection or in asset building.
Therefore, with the cost of borrowing softening in gradual fashion and inflation under control, personal loans can be a smart tool if they are utilised with planning and discipline. Whether it is to manage emergencies or reduce debt burden the key lies in efficient usage and clear loan repayment planning.
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