A personal loan is a type of an 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 in order to use the funds as per the convenience and need.
Personal Loan is thus considered as a solution for instant cash and it also can be used for traveling, wedding, medical emergency, home renovation, or anything else.
The article mainly focuses on the pros and cons of availing a personal loan.
Personal loans do offer the borrower many benefits. Here are thus some of the most important ones.
The flexibility of use: Personal loans are used for multipurpose. They can thus be used for various different types of purposes, ranging from travel expenses, medical expenses, to purchasing the latest jewelry to the electronic gizmos or even house/car improvements.
Quick availability: Getting the personal loans is thus a quick process. In some of the cases, one can get the loan even within 24 hours. So if the borrower is looking for emergency funds, personal loans are thus the best bet.
Minimal documentation required: Normally, 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 is needed: 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 the personal loans don’t need any security, the assets are safe. This thus makes this kind of loan attractive for those who don’t own any assets like car, home, shares etc.
Despite of their apparent attractiveness, personal loans however do have their fair share of disadvantages. Prominent amongst them are:
High interest rates: As these loans don’t need any kind of security, they are thus regarded as high risk by the lenders. Thus In order 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 thus work out quite expensive, since the initial instalments 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. So if the borrower’s credit rating is poor, due to the failure to pay any loan, then his loan application will be rejected. Hence this loan availability is however subject to strict eligibility norms which are based on credit worthiness.
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 also higher interest as they are compared to those who are given to the borrowers with good rating. They however also impose stricter repayment terms on these borrowers.