Are you Falling into the Trap of Personal Loan? Check for these 5 Tell-tale Sign

Posted by Atish Nayar on December 17th, 2018

Unsecured loans are now available for many different reasons in India. Be it a medical emergency, marriage in the family, repaying another loan, or family vacation, you can now take an unsecured loan to manage a host of your expenses.

While such loans can be beneficial during emergencies, their easy availability is leading people to borrow them irresponsibly for reasons that are often questionable. Before you even realise it, you'll find yourself in a debt trap with finances getting difficult to manage with every passing day.

Do you think that you are borrowing more than you can afford? Well, there are a few signs to know if you are falling in a debt trap-

1. Unable to Pay Monthly Installments

If you are finding it difficult to pay your loan EMI regularly, it is possible that you might have borrowed more than you could repay.

While there can be financial emergencies at times that can result in a cash crunch and make it challenging for you to afford the EMI, if your repayments are very irregular it is possible that you are heading for a debt trap.

2. You are Borrowing Money for Consumption

A clear sign which suggests that you are very close to falling in a debt trap is if you start borrowing money for consumption purposes. Unsecured loans make sense when you have a genuine reason to borrow.

But if you want to borrow money to simply buy the latest gadget which you cannot really afford, it wouldn’t be long before you find yourself in a financial mess.

3. You are Falling Prey to the Demonstration Effect

A demonstration effect is an effect caused on your behaviour due to the actions of others around you. For instance, if your friends family is going on an international vacation, you too would like to go for one. If someone around you is buying a new car, you also start searching for the latest 4-wheeler.

The demonstration effect often encourages people to spend more than they can afford. This is usually done by taking multiple loans.

4. You Want Another Loan to Repay Your Current Loans

If you've already taken various loans and are unable to pay their EMIs regularly, taking a new loan to repay them might seem like a great option. While this can actually be a good solution at times, in most of the cases, it is a sign that you are headed on the slippery roads of a debt trap.

Apart from new loans, a lot of people also borrow money from their relatives or friends to repay their current loans. While this is alright at times, doing this regularly is a sign of financial troubles ahead.

5. You Are Not Able to Save Anything

If by the end of the month you are left with almost no money due to your expenses and personal loan repayments, a financial setback is probably not far away.

It is generally recommended that you should be able to save at least 20%-30% of your monthly income after paying your expenses and loan EMIs.