Subashree, a flower seller in Bengaluru, took ₹ 3,00,000 lakhs personal loan for a medical emergency. The sudden medical emergency for her son had drained her savings. Even though the personal loan provided immediate financial relief, the cons were also disheartening. The high interest rates and repayment period on her loan could tighten her budget. But with perseverance, she repaid it without defaulting on the loan.
Illustration:
| Subashree’s Monthly Salary | ₹15,000-18,000 |
| Loan Amount | ₹3,00,000 |
| Interest Rate | 16 |
| Tenure | 5 years |
| EMIs | ₹7,295 |
| Total Interest | ₹1,37,725 |
| Total Amount | ₹4,37,725 |
A personal loan is an instant financial tool that meets your immediate financial requirements. During a medical emergency, you may think about applying for a personal loan. Although it is a good decision, there are also cons to a personal loan. In India, the growth rate of personal loans is 14.4% in 2024. Do you want to know the pros and cons of using a personal loan for medical purposes? This blog meticulously enumerates it.
What is a Personal Loan?
It is an unsecured loan which does not require any collateral. This loan gets approved immediately based on your CIBIL score and credit history. Only the banks are at risk of lending personal loans due to the non-availability of collateral.
As there is no collateral, the interest rates for the loan amount can be slightly higher. Despite the drawbacks, there are many benefits to a personal loan.
Illustration
The formula to calculate your EMI is:
EMI = P * R * (1+R)n / [(1+R)n]– 1
| Principle Amount | Interest Rate | Tenure |
| ₹ 3,00,000 | 12.5% | 5 years |
| Monthly EMIs | Total Interest | Total Amount |
| ₹ 6,749 | ₹ 1,04,963 | ₹4,04,963 |
You can use the loan calculator to check your EMIs.
Pros of Using Personal Loans for Medical Expenses
- Instant Funds
The most important benefit of a personal loan is its instant access to funds. So when you have a financial need for a medical emergency, a personal loan is a suitable option. The loan application and its process hardly require a week.
- Absence of Collateral
A personal loan does not need you to pledge your assets against it. The bank approves your loan amount based on your CIBIL score and the credit history of your bank account. For example, a bank requires a minimum of 700 as a CIBIL score.
- Medical Coverage
A health insurance policy does not fully cover the medical expenses. It can be like the costs of certain drugs, room rent, medical accessories, and many others. A personal loan helps to pay for these miscellaneous charges. For example, rooms worth ₹ 5,000 per day have to be paid by yourself.
- Minimal Documentation
During a medical situation, one cannot often visit the bank to verify all the KYC documents. Personal loan eliminates this pressure. For example, one can use Digilocker to submit KYCs.
- Improved Credit Score
If you repay the loan without defaulting, your credit score increases. This helps you to obtain more loan amounts in the future. With a good credit score, you can also negotiate to lower the interest rate.
Cons of Using Personal Loans for Medical Expenses
- High Interest Rates
Personal loans have higher interest rates. This is because personal loans come under the category of unsecured loans. The absence of collateral also influences the interest rates. For example, the absence of collateral can raise the interest rate to 16%.
- Debt Burden
A personal loan may provide instant relief. Improper budgeting on finance can lead to financial debt as interest rates are high on personal loans. For example, personal loans have interest rates ranging from 10.5% to 16%. So one needs to consider the interest rates.
- Impact on Credit Score
When you are unable to repay the loan or miss the monthly payment, it can impact your credit score. This will reflect in your credit report and credit history, making it harder to obtain loans in the future. For example, loan defaulting can bring down your CIBIL score to below 550.
- Limitations
Personal loans come with many restrictions on the usage of the money. Because everyone cannot maintain the exact CIBIL score. If the credit score does not meet the eligibility criteria, the bank may not sanction the desired loan amount. For example, usually ₹3,00,000 is sanctioned due to the absence of collateral.
- Temporary Solution
A personal loan can meet your medical costs at present. But one must understand that it adds one more debt to the already strained finances. So the debt gets repeated once again.
Conclusion
After self-assessing your financial capability, you must take a personal loan for medical expenditures. Personal loans for medical expenses can provide only temporary relief. But it can also lead to financial burdens. As there is no collateral, the interest rate is high on a personal loan. So consider all the pros and cons of a personal loan before applying.