A personal loan is a type of unsecured loan which helps to meet the current financial needs. One, however, doesn’t need any kind of security/collateral while they are availing it. The personal loan also gives the flexibility to use the funds as per the convenience and need.

A personal loan is considered as a solution for instant cash and it also can be used for

  • Traveling
  • Wedding
  • Medical emergency
  • Home renovation etc.

Personal loans do offer borrowers many benefits. Here are thus some of the most important ones.

The positive impact of Personal Loan

Flexibility

  • Personal loans can be used for multipurpose.
  • They can thus be used for various types of purposes
    • Ranging from travel expenses
    • Medical expenses
    • To purchase the jewelry
    • Electronic gizmos, etc.

Quick availability

  • Getting a personal loan is a quick process.
  • In some of the cases, one can get the loan even within 24 hours.
  • If the borrower is looking for emergency funds, personal loans are best.

Minimal documentation required

  • Usually, the personal loans don’t need much documentation, as when it is compared to a home loan or a  car loan.
  • Hence the processing time in it is quicker.

No collateral or security

  • There is no need for any kind of security required to obtain such a loan and thus the loan tenure is however much shorter as compared to a home loan or a car loan.
  • This has minimal risk for the borrower comparatively as if the borrower is unable to repay the loan, his security is forfeited in the case of other loans.
  • As personal loans don’t need any security, the assets are safe.
  • A personal loan is more useful especially for those who don’t own any assets like a car, home, shares, etc.

Negative Impact of Personal Loan

Despite their apparent attractiveness, personal loans however do have their fair share of disadvantages.

High-interest rates

  • As these loans do not need any kind of security, they are thus regarded as high risk by the lenders.
  • Thus to offset their risks, these loans thus carry very high-interest charges.

No part payments

  • Most of the lenders don’t allow part payment of the loans.
  • This means that the borrower ends up paying the loan for the entire tenure of the loan.
  • It can work out quite expensive since the initial installments go towards the interest payments.

Need for good credit rating

  • As these loans are however quite risky, most of the lenders insist on their borrowers for having a good credit rating.
  • If the borrower’s credit rating is poor, due to the failure to pay any loan the loan application will be rejected.
  • Hence this loan availability is however subject to strict eligibility norms which are based on creditworthiness.

Variable loan and interest as per your credit rating

  • Even those lenders, who however offer loans to the borrowers with the poor rating, thus end up offering a lower principal amount, and
  • Higher interest as they are compared to the borrowers with a good rating. They however  also impose stricter repayment terms on these borrowers.