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
- 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
- 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.
- 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.
- 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.