How does a personal loan compared with an investment or savings?

A personal loan, investments, and savings each play a different role in your financial life. A personal loan helps you with immediate access to funds for planned expenses or emergencies, but it comes with an interest cost and the responsibility of repaying the borrowed amount through EMIs. In contrast, investments and savings help you grow your wealth and provide a financial cushion without adding to your debt.

Here’s how they compare:

• Personal loan: Best for urgent needs or when you want to avoid breaking long-term investments or fixed deposits. It gives you quick liquidity but at the cost of interest payments and a repayment schedule.
• Savings: Ideal for short term goals and emergencies. Savings accounts and fixed deposits offer safety and easy access but returns are usually modest.
• Investments: Suitable for long-term goals like retirement, children’s education or wealth creation. Investments in mutual funds, stocks, or bonds can yield higher returns but come with market risks and are less liquid.

If you have enough savings to cover your immediate need, it often makes sense to use those funds and avoid the cost of borrowing. The interest you pay on a personal loan is usually higher than what you earn from traditional savings products. Always weigh the cost of the loan against the potential returns from your investments or savings before making a decision. Use personal loans for genuine needs and keep investments focused on long-term growth and security. This balanced approach helps you stay financially healthy.