5 Ways in Which a Personal Loan Can Help You Save Money
5 min read | 3 months ago
Borrowing money through a personal loan has become almost second nature. It’s quick, accessible and lets you meet pressing financial needs without dipping into your savings. But there’s more to it. Beyond just providing a financial boost, personal loans can also be a strategic tool for saving money. When used wisely, they can lighten your financial load and even help you free up extra cash. Here are five ways in which a personal loan can help you save more than you might expect.
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.
Wrapping Up
Personal loans can be a smart choice when other financing options, like credit cards, are either too costly or not suited for your needs due to high interest and less favourable terms. Unity Small Finance Bank offers personal loans that are tailored to meet your needs with flexible repayment terms, competitive rates and clear fee structures. It can help you achieve your financial goals and make life’s big moments more manageable. Explore the offerings to find the best personal loan for you today.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.