Household borrowing climbed sharply after the Covid years, leaving many families with higher monthly obligations. If you’re thinking of taking a personal loan or any other unsecured credit, a quick reality check can save stress and money down the road.
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Why many households borrowed more
- Income disruptions: Job losses and reduced work hours pushed people to rely on credit for daily expenses.
- Rising costs: Higher medical and living costs led families to tap savings or borrow to bridge gaps.
- Easy access to credit: Lenders rolled out quicker personal loans and higher credit limits, which encouraged borrowing.
Quick checklist before you borrow
- Define the purpose: Is the loan for an emergency, investment, or discretionary spending? Borrow only for essential or value-adding needs.
- Check affordability: Calculate the EMI and make sure it fits comfortably within your monthly budget. Leave room for surprises.
- Know your debt-to-income ratio: Total monthly debt payments should not crowd out necessities. Aim to keep repayment obligations manageable.
- Compare rates and fees: Look beyond the headline rate. Check processing fees, prepayment or foreclosure charges, and penalty clauses.
- Loan tenure matters: Longer tenures lower EMIs but increase total interest. Shorter tenures cost more monthly but save interest overall.
- Fixed vs floating rate: Understand how interest can change and whether rising rates will strain your budget.
- Read the fine print: Check for hidden charges, insurance requirements, and documents needed for disbursal.
- Have an emergency buffer: Keep 3–6 months of expenses aside so loan payments don’t derail your finances.
- Plan repayment: Set up an automatic payment or calendar reminders to avoid missed EMIs and credit score damage.
- Explore alternatives: Could savings, a lower-cost secured loan, or balance transfer options be cheaper?
When to hit pause
- If you’re borrowing for non-essential wants while already carrying high debt.
- If your income is uncertain in the near term.
- If the effective cost of borrowing (fees + interest) is very high compared to alternatives.
When borrowing can make sense
- To cover unavoidable emergencies like medical bills.
- When the loan helps preserve or grow income (upskilling, essential home repairs that prevent bigger costs).
- To consolidate very expensive debt into a lower-rate product, after careful calculation.
Bottom line: Borrow consciously. A short checklist and a realistic repayment plan go a long way toward avoiding long-term stress and protecting your financial health.