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There are numerous instances in day-to-day life where finance is needed. Such capital may be required for multiple purposes, like meeting emergency, medical purposes, funding further education, besides others. In absence of liquid cash, there are two alternatives to obtain the necessary finance, namely borrowing a loan for personal use or breaking existing investments.

About personal loan

Personal finance may be borrowed from lenders like banks and Non-Banking Financial Companies (NBFCs). This loan amount has to be repaid along with interest, over a period of time, known as loan tenure. Payments are to be made every month, in the form of Equated Monthly Installments (EMIs). Remember, higher the loan tenure, lower is the EMI amount, and vice versa. However, it is necessary to understand that extending the loan period may attract a higher interest amount.

About investments

An amount that is saved from regular income and invested in financial instruments like bonds or stock market is known as investments. The main goal of investing is to obtain profits. It is used to create wealth in the long run. Therefore, an investment is a monetary asset that is bought with the idea to provide income in the longer run or to be sold at a higher price for a profit.

Making the right choice

It is important to weigh the pros and cons of both the options. The sole purpose of either borrowing a personal loan or breaking an investment is to obtain finance. You need to consider the cost factor associated with both the options. Breaking an investment is not a recommended option as you would lose the profit margin due to early withdrawal. Additionally, advanced withdrawal may also attract a penalty. A more feasible option would be to apply for a personal loan. You have to make repayments over a period of time, which reduces financial strain. Many lenders these days offer competitive interest rates, thereby making it a popular option.

While making the right decision, it is also necessary to consider your long-term goals. Availing of a loan does not have any impact on your long-term financial goals. However, breaking an investment is not advisable as money invested is earmarked for the future. Utilizing investments during the financial crisis is not a feasible option as you may have to make additional savings in the future to make up for the loss.

Benefits of a personal loan

It is easy to acquire personal finance. Upon successful submission of all the necessary documents, the application is processed and the loan amount is quickly disbursed into your account. This makes it a great option during a financial crisis. Additionally, you may avail of a personal loan online within the comfort of your home. Besides, online applications attract a lower interest rate as the cost associated with the physical transaction is eliminated.

Such loans may be used for multiple purposes.  Moreover, you may also claim tax deductions on the interest paid if you are using the finance to buy a new house, or renovate your existing house. A personal loan is, therefore, a more financially viable option than breaking investments.

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  1. Sidharath says:

    Dear Sir
    The article is based on two presumptions:
    1) Additional Penalty will be levied in case of withdrawing borrowings.
    2) The effective interest to be paid towards loan is less the interest which the investment is earning.
    However, both of the above presumptions are not valid always. The additional penalty is not there, or it is waived off and the interest to be paid towards loans is generally more than the interest the investment is earning and in such a scenario it would be advisable to break ur investment rather than taking a loan.

  2. Rajat Monga says:

    I am prospective investor and was looking for some radical investment options. Can you suggest some? Recently heard about P2P lending and was thinking of investing some amount.

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June 2024