Emergencies crop up every now and then and you may find you need a lump sum, which you don’t have lying idle in your bank account. In the absence of an identifiable contingency fund kept aside for such purposes, there are two solutions: take a personal loan or break your savings. Here are four parameters to make the right choice.
Cost
Personal loans have high costs: the interest you pay on the loan amount. Currently, a personal loan can cost between 12% and 22% per annum. The cost of breaking your savings is the earnings you forego on them. The 1-year fixed deposit rate now is about 7.5%. For a short-term income fund, annualised earning is 9-9.5%.
