Should you use a personal loan to buy home appliances?

Why people use personal loans for appliances
Consumer appliances such as refrigerators, washing machines, and air conditioners are typically costly. If one is unable to spend, the majority of customers utilize personal loans to pay instalments over time. Personal loans being a non-collateral instrument, banks and NBFCs will release them promptly, generally within days, since they are well-liked for urgent purchases.

The cost involved
While easily accessible, personal loans are relatively expensive when compared to other means of financing. The interest rate varies between 11% and 20% a year, depending on your lender and credit score. Over a repayment term of two to five years, the cost of borrowing easily exceeds the original price of the appliance. Processing fees, penalties for prepayment, and default charges on EMIs add to the cost.

Convenience versus risk
The largest advantage of a personal loan is the flexibility — you can use the money to buy any appliance without any constraint. But because the loan is unsecured, non-payment will damage your credit rating and further borrowing will become harder. Unlike loans lent against assets like FDs or mutual funds, there isn't any collateral, and therefore lenders must charge higher interest to cover their risk.

Better alternatives to consider
Before you borrow a personal loan, you need to weigh the no-interest EMI plans offered by stores selling appliances and credit card companies. They divide the price into interest-free instalments. The second alternative is borrowing against an FD, which would be much cheaper with regard to the rate of interest. The choice depends on whether you have the capability to repay or need the appliance urgently.

Impact on financial health
A personal loan can be useful if utilized wisely, but frequent borrowing for consumer durables can fall into a debt trap. Appliances are depreciable assets with heavy interest payment on them not always being the best possible deal. It is advisable to save personal loans for essential items or emergencies rather than discretionary spending.

Long-term value of borrowing for appliances
In selecting a home appliance personal loan, the lifespan of the appliance and the loan tenure should be considered. When you are still paying EMIs years after the appliance is no longer working or needs to be replaced, the debt has outlived the asset. This imbalance undervalues the loan and that is why shorter tenures or alternative ways of financing could prove to be wiser for such an expenditure.