Life frequently traverses uncharted routes. It is hard to predict which financial crisis might arise and disrupt your budget by introducing unforeseen costs into your life filled with highs and lows. A significant disease, unemployment, and similar situations are included in these crises. In this scenario, even after numerous instances of food scarcity, funds must be gathered for these necessary costs. To achieve this, individuals turn to two kinds of strategies. One of these is a personal loan and the other is an emergency fund. It is essential for us to understand which is superior in various situations and which loan is preferable in what aspect.
What is an emergency fund?
An emergency fund is a kind of arrangement of funds prepared in advance to deal with sudden expenses. It is a liquid account like a savings account, which you can access instantly as per your need. For this, experts ask to keep an amount equal to three to six months’ income. There is no need to get approval from anyone for this amount. There is no interest to be paid on this amount. Think of it like this, if you have to spend 50 thousand rupees in a sudden illness, then you can spend it without worrying about monthly expenses.
What is the benefit of a personal loan?
A personal loan is an instant borrowing of money from a bank. It is available immediately after applying to the bank, if everything is fine. Through this, many times the amount is received in less than 24 hours.
But for this, you have to pay interest. So overall the emergency fund is better. But if you need more money than savings immediately, then you may have to resort to a personal loan. But for this, it is important that you keep your credit score better.
