Top 5 smart uses of personal loans in tough times
With consumer inflation dipping to 2.82% in May — marking its lowest level in over six years — the lending environment in India is undergoing a noticeable shift. As a result, numerous leading banks are adjusting their borrowing rates downward, aligning with the central bank’s monetary policy adjustments. This shift has prompted borrowers to reconsider how they can best utilize personal loans to navigate both financial hardship and opportunity.
The core challenge now lies in using personal loans wisely — especially in a climate marked by fluctuating economic conditions and dynamic inflation patterns. Thoughtful borrowing and financially sound decision-making have become more important than ever.
Sudhir Khot, Founder of Financial Fitness, explains:
“When used for the right purposes, a personal loan can offer relief and restore a sense of control during financial uncertainty. A well-planned loan becomes a tool to support, not strain, your finances.”
He also notes:
“Loans must be handled with care. They can either be a lifeline or a liability. When managed responsibly, they provide not just breathing room, but also reinforce financial credibility.”
With that perspective in mind, here are five effective ways to make personal loans work to your advantage during economically challenging times:
1. Build a Safety Net for Emergencies
Unexpected expenses — such as sudden medical treatments, job losses, or income disruptions — can dismantle even the most carefully planned budgets. In such cases, personal loans serve as a short-term funding solution without forcing you to tap into long-term investments or liquidate savings.
Most personal loans are unsecured and disbursed quickly — often within 24 to 48 hours — and come with predictable monthly installments, especially when taken with a structured repayment plan.
2. Take Advantage of Falling Interest Rates
The Reserve Bank of India’s recent cuts to the repo rate have led many banks, including SBI, to lower their personal loan interest rates by up to 0.50%. For borrowers with strong credit histories, this is an ideal time to refinance high-cost loans or fund necessary expenditures at a reduced borrowing cost.
3. Merge Multiple Debts into One
Handling several credit card payments or high-interest loans can be both financially draining and logistically difficult. Opting for a single personal loan to consolidate this debt helps simplify repayments and often results in lower interest outflows. With fixed EMI schedules, this strategy also shields borrowers from the escalating cost of revolving debt — especially important when inflation is high.
4. Fund Critical Home Repairs
Inflation not only raises daily expenses but also drives up costs of raw materials and labor for home improvement. Postponing essential repairs can be risky and more costly in the long run. A personal loan obtained at competitive rates can help fund repairs such as plumbing, structural work, or repainting, without compromising your emergency reserves.
5. Avoid Using Loans for Non-Essentials
Default rates on small-ticket and personal loans have risen significantly among private sector banks, with gross non-performing assets ranging from 1.42% to 4.7% in the fourth quarter of 2024. This trend highlights the risks of casual or excessive borrowing.
Financial advisors strongly discourage using personal loans for discretionary spending such as electronics, destination weddings, or luxury vacations. Loans should primarily support vital expenses — including health-related costs, temporary income loss, or investments in long-term assets.
Conclusion
With borrowing costs trending lower and inflation relatively contained, personal loans can serve as a useful financial tool — if approached with foresight and discipline. Whether you’re looking to address an urgent financial need, consolidate debt, or improve your financial resilience, the key is to borrow responsibly and stick to a well-planned repayment strategy.
