When savings aren’t enough, here’s why people choose personal loans

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A home is often the biggest asset most families own, but maintaining or upgrading it requires regular spending. Renovation projects—whether installing modular kitchens, adding an extra room, or just painting the interiors—can easily run into lakhs. While some homeowners prefer dipping into savings, many now find personal loans more convenient. With EMIs spread across a few years, the financial burden is lighter and there’s no need to compromise on quality or design choices.

Weddings and celebrations

Not many expenses in India rival a wedding bill. Even medium-sized celebrations can soon become expensive after factoring venue rentals, catering, photo sessions, décor, and jewellery. Those families who want to keep savings intact end up taking personal loans to meet funding gaps. Personal loans are private and simplified compared to, for instance, gold loans or taking money from relatives. It's a way some couples enter married life without stressing their or their parents' finances.

Education and skill-building

With rising costs of education, and increasing aspirations about sending children overseas for higher studies, it’s no surprise that education is another segment where the need for personal loans high. While education loans are available, they often don’t suit short-term certification courses, online courses, or skill development programmes. For example, a person who wants to switch careers into digital marketing or data science might not be eligible for a traditional education loan but can easily get a personal loan. Children being sent abroad by their parents also depend on personal loans to meet expenses like travel, accommodation, or deposits, which are not accounted for by banks in formal education loan products.

Medical emergencies

Even with health insurance, unexpected medical bills can create financial stress. Insurance policies often exclude certain treatments, limit room rent, or don’t cover post-hospitalisation care. Personal loans can be useful in these cases because they are disbursed quickly—sometimes within 24 hours, whereas cashless insurance or reimbursements require hefty paperwork and often don’t come by on time. When a loved one is in critical care, having access to instant funds means treatment is never delayed due to financial concerns and it becomes one less thing to worry about. For many Indians, this remains one of the most practical uses of personal loans.

Travel and lifestyle upgrades

Young professionals, both salaried and no salaried, are increasingly opting for personal loans to pay for experiences, rather than needs. Whether it's for funding a holiday to Europe or a new smartphone, people like to split expenses into affordable EMIs. While planners don't recommend borrowing for lifestyle indulgence, there is a demand for it. Even travel loans, for example, have gained immense popularity during long vacations and festive breaks, when families did not wish to pay outright for a stress-absorbing vacation.

Bundling debt

One of the best things to do with personal loans is to club multiple loans into a single EMI. Credit card interest rates are normally higher than 30-36% per annum, whereas personal loans are available at substantially lower rates, normally between 10-20%. They are often used by individuals to settle high-interest credit card bills or tiny loans, and organising their monthly instalments. This not only reduces stress, it also strengthens credit histories in the longer term.

Why personal loans are so popular

The appeal of personal loans lies in their simplicity. Unlike home loans or car loans, there’s usually no restriction on what they are being used for. Borrowers don’t have to pledge any collateral, and the approval processes are faster, thanks to online applications and pre-approved offers. Lenders increasingly rely on credit scores and digital verification, making it easier for salaried professionals and even self-employed individuals to access funds.

At the same time, experts advise borrowers to be careful about their repayment capacity. Since personal loans are collateral-less, interest rates are a bit higher as compared to secured loans. Missing EMIs can damage your credit history and increase the cost of borrowing in the future.

FAQs

1. Is it a good idea to take a personal loan for lifestyle expenses like travel or gadgets?

While it’s possible, financial planners advise caution. Using loans for non-essential expenses can lead to long-term debt. It’s better suited for emergencies or essential big-ticket spending.

2. Can I prepay a personal loan before the tenure ends?

Yes. Most lenders allow prepayment or foreclosure, though some may levy a small penalty. Prepaying can help reduce the overall interest outgo if done early in the loan tenure.

3. Will taking multiple personal loans hurt my credit score?

Yes, if not managed well. Frequent borrowing increases your debt burden and can make lenders hesitant to approve future credit. Timely repayment, however, will help maintain or even improve your score.