Why do we take personal loans? A look into the psychology of borrowing
Taking a personal loan is simple these days. All you need is eKYC and the ability to repay. But what works behind the psychology of taking loan? Ideally there should be a strong need for it but the guilt of raising loan should be minimal.
To put it simply, when you raise a loan, you should have a strong need for it, instead of securing it merely because it is available. The key reasons for raising a loan could range from personal emergency to house renovation and from wedding expenses and higher education to urgent travel.
These are some of the four key reasons of raising a personal loan.
Personal loan: 4 key reasons
I. Emergency: One of the key reasons for raising a personal loan is personal emergency. Let us suppose, someone in family is ill or an old friend needs money.
II. House renovation: Another important reason could be to get the house renovated. Typically, individuals take home loan to get the house renovated but when you are not eligible to take any more home loan, you could rely on personal loan for the same.
III. Wedding: Another important reason to take a personal loan is to spend on some important function such as a wedding or anniversary, which are events too important to be deferred for want of money.
IV. Urgent travel: Although it is not recommended to take a loan for vacation, but there could be situations where you have to take a loan for undertaking an urgent trip within India or overseas. This could lead to raising of loan.
Guilt that follows
Once the loan is taken, guilt may follow, especially among the salaried individuals or young professionals. There could be guilt of failing to save sufficient money, guilt over burdening the future and there could also be a guilt of hiding the loan from friends or family.
Unlike a home or car loan that is linked to an asset, a personal loan can feel like debt without proof. It is invisible, and it makes you feel emotionally heavier.
Culturally, we are taught to refrain from taking unnecessary borrowing since it leads many to feel bad even when taking the loan was a rational thing to do.
Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
For all personal finance updates, visit here
