1. For consolidating debts

Suppose you have multiple credit card balances with high interest. By consolidating them into a single personal loan with a lower rate, you reduce your overall interest. This way, you can simplify payments and save more in the long run. So, basically, you can pay off the debt faster and make the monthly burden lighter.

If you have two credit cards with a combined debt of ₹1 lakh at a 30% interest rate, replacing them with a personal loan at 12% can significantly reduce your costs. By shifting to a lower-rate loan, you could save around ₹18,000 annually on interest alone. 

2.For financing a big purchase/event

Imagine you’re planning a wedding or home renovation. A personal loan offers fixed monthly payments at a lower interest rate than credit cards. This allows you to budget effectively without the worry of accumulating high-interest debt.

Say you’re planning a ₹5 lakh wedding. Opting for a personal loan at 11% interest over using a credit card at 24% could save you ₹65,000 over three years. Plus, fixed EMIs let you plan your budget without worrying about rising interest.

3. For building a good credit score

Taking a personal loan can be a good way to start building your credit profile if you do not already have one. By regularly repaying the loan on time, you demonstrate financial responsibility, which helps establish a credit history. 

This can make it easier to access credit during emergencies, as lenders may view you as a trustworthy borrower. A well-maintained credit profile also opens up options for better loan terms in the future, providing you with financial flexibility when needed.

4: For availing credit at no additional costs

Credit cards often come with hidden fees and less flexible repayment terms, which can make managing debt costly and challenging. Personal loans, however, typically offer clear fee structures and the flexibility to repay early without penalties. 

This means you can save on interest and avoid unexpected charges, making personal loans a more budget-friendly option for large expenses. The structured repayment terms also provide better control over your finances compared to revolving credit card debt.

5. For making the most of tax benefits

If you use a personal loan for home improvements or education, you might qualify for tax deductions on interest payments. For example, financing a home remodel could allow you to claim interest deductions. This helps reduce your taxable income and offers more savings.

Suppose you use a ₹3 lakh loan for home renovations. If eligible, you could claim deductions on interest under Section 24(b) of the Income Tax Act, potentially saving ₹9,000 a year in taxes. This reduces your financial burden and maximises savings.