The Pros and Cons of Personal LoansIn today’s competitive world, people struggle to earn money to fulfil their goals, but many individuals are unable to pursue their dreams due to financial constraints. For them, a personal loan comes as a relief and huge financial support to accomplish their immediate goals.
Mostly personal loans are unsecured loans, not backed by any sort of collateral, in contrast to secured loans where it becomes mandatory to keep your property as collateral.
Besides, personal loans are popular; it also carries various pros and cons with it. It can be advantageous for some and disadvantageous for others. But if you are good at managing finances and the money needed is an emergency, then a personal loan is the right choice and perfect for you.
Listed below are the pros and cons of a personal loan. Let’s have a glance:
Personal loans - Pros
There are several reasons for a personal loan to be a good choice and the benefits are:
- Flexible & versatile- There are loans taken for specific reasons like home loan or car loan. But a personal loan can be used for many purposes from medical expenses to consolidating debts. Its flexible and simple nature is the reason for its growing popularity over other types of loans.
- No collateral- This means you don’t have to worry about your property to keep as collateral or security when applying for a personal loan.
- Fixed interest rate- Mostly personal loan interest rates are offered on a higher side, though it may differ from lender to lender, but benefits as a fixed rate of interest for a long repayment tenure. Personal loan interest does not fluctuate and remains fixed till the end of the loan tenure, an ideal way for managing your budget.
- Flexible repayment tenure- Allows one to take a personal loan and pay it at their convenience. By opting for the flexible repayment tenure, a borrower can maintain their expenses and start paying regular EMIs.
- Quick loan disbursal- The most beneficial factor is quick approval and sanction of the loan amount within 24 hours or less when you meet the eligibility parameters set by the lender.
- Minimal documentation- When you take a personal loan through instant loan apps and official websites, it becomes quick to acquire a loan with paperless documentation. No physical documentation is needed except KYC details and income information.
Personal loan - Cons
- High-interest rates- Being an unsecured loan type, a personal loan procures a higher interest rate as compared to long term loans like a home loan. A home loan has a floating interest rate and fluctuates as the socio-economic condition of the country fluctuates.
- Strict eligibility parameters- Most financial services and NBFCs insist on a certain income level before considering the loan application. Additionally, the credit score of a borrower is also under inspection. So when it comes to eligibility criteria for personal loans, lenders follow strict procedures.
- High processing fees- Some lenders levy processing fees, which is a certain percentage of the loan amount. The processing fees are naturally higher than the one charged towards a secured loan that means the borrower gets a lower loan amount than requested.
- Delayed or pre-payment penalties- Though personal loans have a flexible repayment option. Not paying the monthly EMIs on time can result in a poor credit score, and penalties can be levied on delayed repayments. Some lenders charge prepayment penalties if you pay off the loan amount before the end of the loan tenure.
A personal loan is a good idea if you need quick money, or an emergency occurs. Funds can be made available faster. The interest rate can also be less particularly if you hold a good credit score. Personal loans are ideal for debt consolidation, paying off medical bills or restructuring your home.
Hence, if you are planning for a personal loan, compare and get quotes from several lenders to compare interest rate and loan terms. Also, before applying for a personal loan always use a personal loan EMI calculator to determine whether you are capable to afford the monthly payments. Once you have all the information, decide whether a personal loan is the right choice for you or not.