Taking a personal loan in today's times is just a matter of few clicks. In fact, one can even take an instant personal loan for shopping, besides using “Buy Now Pay Later” option or credit cards. An e-commerce giant recently announced a partnership with a lender to provide personal loans to its customers, meaning one can take an instant digital loan through its platform in a few minutes, to make the purchase they can't afford otherwise.
While taking out a personal loan is easy, there is a huge gamut of risks involved in using these loans for shopping. Some of these include:
Your credit score is badly affected
Your credit score is determined by various factors, such as your debt levels, the types of debts you have, and your borrowing habits.
When it comes to personal loans, there are several ways in which they can impact your credit score. Taking out a personal loan might increase your credit utilisation, which can negatively affect your score. It's crucial to avoid missing any loan payments as even a single delay can harm your credit score. This can be particularly problematic if you haven't budgeted appropriately for the loan. If you're already struggling to meet your financial obligations, it's not advisable to take out a personal loan solely for shopping purposes.
It's important to understand that any loan you acquire carries the risk of potentially lowering your credit score. Therefore, before pursuing a loan, it's essential to carefully evaluate your financial situation and make an informed decision.
Too much debt can result in penury
Using a personal loan for shopping carries the additional danger of falling into an insurmountable debt trap. If you frequently rely on borrowing money for shopping, it's crucial to reconsider your lifestyle choices, as excessive debt can rapidly spiral out of control and result in bankruptcy. Bankruptcy has severe consequences, such as plummeting your credit score from top-tier to poor, which can make it arduous to access financial services, secure housing, or even find employment!
Mounting debt in case of non-repayment
Financial circumstances can undergo sudden and unexpected shifts. For instance, suppose you opt for a personal loan for shopping and find yourself unemployed within three months. In such a scenario, you might encounter difficulties in repaying your loan.
Defaulting on loan payments can have adverse consequences, including a negative impact on your credit score and the possibility of your debt being handed over to a debt collector. Engaging with a debt collector or debt collection agency can introduce complications. Failure to fulfill your obligations to a debt collector can potentially lead to legal action, a course of action not available to lenders.
Essential expenses neglected
Paying too much attention to unwanted expenses can cause your mind to be shifted to the frivolous from what is much needed. If you borrow a loan that exceeds your financial capacity, particularly for non-essential purposes like shopping, you could find it challenging to cover your essential expenses each month. Without a proper budget in place, it becomes difficult to ascertain your available funds and the monthly bills you must prioritise. Therefore, even before considering loan options, exploring various lenders, or initiating the loan application process, it is crucial to determine the monthly payment you can realistically afford and differentiate it from what you cannot.
Your spendthrift behaviour can harm your relationships
If you are already burdened with debt due to shopping and you have joint financial responsibilities with another individual, acquiring additional debt can potentially strain your relationship. This is particularly significant if you have encountered problems related to excessive spending in the past. To prevent conflicts over money within your relationship, it is crucial to maintain honesty and transparency about any new loans with the person you share financial matters with.
Not all personal loans are bad, however, picking up a loan that is necessary while considering the credibility of the lender, affordability of loan terms, reasonable interest rates, and flexible repayment cycles is important before considering any such offer.
