Fathers do not go around running in backyards screaming “Happy Father’s Day”. For them, being a father is about assuming the responsibility of their wards. To be able to give to their children what they never got assumes more significance than relegating a particular day, like June 18 this year to their comfort.
However, notice carefully, and you will find your father’s back bent under the burden of loans, especially, debt that may have been incurred to pay off for emergencies.
Taking emergency loans is not new as many families unable to procure enough money to meet unforeseen circumstances incur debt to pay for the essentials. The expenses can be owing to any reason. The urgency to seek emergency loans (aka personal loans to pay for emergencies) was especially palpable during the Covid-19 crisis when people took out loans to pay hospital bills or mandatory living expenses.
This Father’s Day, as you celebrate your father’s contribution to your well-being, pay attention to what emergency loans are meant for to avoid repeating mistakes when you don the role of a doting father to your kids.
What are emergency loans?
Before you ask your father why he took an emergency loan or which part of your living expenses did he pay using the loan amount, understand how the concept of an emergency loan stems from the word “emergency”. Typically, emergency loans are modest, unsecured loans used to meet small needs.
Personal loans, payday loans, and credit card cash advances are common sorts of emergency loans, and they are typically used to pay urgent and unexpected expenditures. Since these loans are unsecured, thus, hinting at the absence of collateral in place, the interest rates on these loans are typically higher than the secured loans.
There are myriad factors affecting the interest rates on these loans. Some of them include:
- Credit Score
- Existing relationship with the lender
- Monthly income
- Residential status of the borrower
- Employment status
The fact that your father had to take an emergency loan hints at the possibility of him having neglected the idea of accumulating an adequate emergency corpus, which is normally between three and six months’ worth of household expenses in a high-yield savings account or bank deposits. However, there could also have been a pressing need for sudden money, thus, prompting him to take out the loan.
Why avoid emergency loans?
There could be so many reasons that spell the sudden need for money. For example, during the sudden layoffs by many companies, many unemployed people applied for emergency loans to repay their credit card debt or used the loan amount to get rid of their consolidated debt to date.
In the end, any kind of loan one takes is a liability that must be rid of either with timely repayment or by strategically prepaying the loan through increased equated monthly instalments (EMIs).
This Father’s Day, gift your father a debt-free life. You may choose to repay his entire loan amount or help him prepay the loan by adding to the EMIs from your monthly income. Perhaps, you can also explain to him the cons of taking a loan and the benefit of having an emergency fund to escape the need for taking a loan in the future.