Nowadays, the trend of taking a personal loan for medical expenses, education, or business expansion has increased a lot. However, taking a personal loan for business can be a bit tricky. There are many things to keep in mind in this. So, if you are also thinking of taking a personal loan for your business, then here are 5 important things that you must understand. This will make your difficulties easier and help you make the right decision.
A personal loan is the biggest weapon for a business in an emergency
The biggest advantage of a personal loan is that it gets approved quickly. Business loan involves a lot of documents and a long process. But, a personal loan can be obtained in a few hours. It is perfect for business professionals who need money immediately. It is a powerful option to grow the business in an emergency.
Loan without guarantee
No property or guarantee is required to take a personal loan. It is very beneficial for people doing new business. But due to this, its interest is high. The terms of loan repayment can also be difficult, which can cause problems in the future. The interest rate can also change according to your credit score, loan period and bank policy. Therefore, pay attention to these things before taking a loan.
How good is a personal loan for a big business
Personal loan is easily available, but its maximum amount is limited. Most banks provide only up to ₹ 10 lakh as a personal loan, which is not enough for a big business or expansion. Therefore, before taking a loan, make sure to properly assess your need and loan repayment capacity. It may happen that your need is more and you get less loan.
It will have a direct impact on the credit score
A personal loan is directly linked to your credit score! Repaying the loan on time improves the credit score, but if you are unable to repay the loan, your score may deteriorate. This may make it difficult to get a loan or credit card in the future. Therefore, take a loan only when you are confident that you will be able to repay it on time.
Tax exemption will be available only after proving investment in a business
If you take a personal loan for business, you will get tax exemption only if you can prove that the loan amount has been invested in the business. For this, it is necessary to have the right documents, otherwise, there may be problems in tax filing. You should consult a chartered accountant or tax expert so that the personal loan taken for business can be shown correctly on the tax return. This is an important aspect of saving tax for you.
Take special care of these things while taking a personal loan
Different banks have different interest rates. Also, check the processing fees, foreclosure charges, and hidden charges.
You can choose a longer tenure to keep the EMI low, but this increases the total interest. Decide on the loan tenure wisely.
A good credit score (750+) helps in getting loan approval and low interest rates. Check your score first.
Take a loan only for necessary things. Taking an unnecessary loan can lead to a financial crisis.
Not paying EMI on time can harm your credit score and also lead to penalties. So, make sure to plan your repayment.