It's not too difficult to take a personal loan from banks these days. You have the constant call from a bank executive of a bank or their associates, asking if you would like to avail a personal loan.

Once you have taken a personal loan and you have paid a few installments, you get a call asking if you want to top-off the loan.

What this means is that if you have taken Rs 3 lakhs and paid the same for about a year, they would want you to add a little more to it.

Why banks first try to sell personal loans?

Personal loans is the most lucrative of loans for banks. Interest rates on personal loans vary between 13 and 24 per cent depending on your creditworthiness and the bank involved.

Home loans and car loans can range between 10.10 per cent and 12 per cent, while educations loans are marginally expensive.

But, none of these is as expensive as a personal loan. Just imagine paying rates between 12 and 24 per cent. Horribly expensive indeed!

Banks margins are greatly enhanced by almost 2 times if they give you a personal loan. Also, their risk is covered since you have to pay the insurance amount for a default. And in case you default the bank gets its money from the insurance company.

How to avoid taking a personal loan?

Why would you need a personal loan for? Among the many reasons for taking a personal loan would be medical emergencies.

To avoid such an emergency it's best to take an insurance policy that covers your health expenses adequately.

Say you need emergency money for a holidays. It's best to either avoid that holiday or gather money well in advance to fund those holidays.

Many folks also taking personal loans to meet educations needs. It's important to note that education loans come at a much lower rate of interest and it's even lesser for girl students. Yes, there maybe a little running about to do when it comes to getting your loan approved, but, then it is worth the cause.

If your documents are in order there is no reason why a banker will not fund your education loan requirements.

Conclusion

There is a high possibility that you would have received a call from personnel of banks or their associates for taking a personal loan.

As mentioned above it's a high margin business for banks, but, it could drain your own finances. It's best to try and avoid these loans as far as is possible.

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