Personal loans are the instruments of credit which can be used by an individual at the time of a financial crunch. It is one of the easiest and fastest retail loans. However, as we have always known everything have their own advantages and disadvantages. The same applies for personal loans as well. The pros and cons of personal loans can be summed up as follows.
Pros of taking a personal loan
The advantages or benefits in relation to taking a personal loan are as follows:
1) No bindings in regard to spending:
The biggest advantage of a personal loan is the fact that it can be spent for any purpose. All other forms of loan are restricted in terms of how it is being spent. For example, home loans can be used only for the purpose of building or renovation of a house. Personal loans do not limit the utilisation of the money. It can be used for any purpose right from paying off bills to paying tuition fees or even going for a vacation.
2) No need for collateral:
Personal loans are usually unsecured loans. Thus, you will not be required to provide any collateral against the loan that you take. However, the eligibility criteria are stricter, and the interest rates are higher because of the higher risk factor associated with personal loans.
3) Loan amount as per your requirement:
You will be able to apply for a loan amount which is sufficient as per your requirement. Most lenders have a lower limit and an upper limit on the basis of which loan applications can be made. If the amount as per your requirement falls within that range and you qualify to be eligible, the chosen loan amount will be approved and disbursed accordingly.
4) Fast processing of loan:
Personal loans are generally processed really fast. In most cases, it takes only a few days to approve, process, and disburse the loan amount. In case of certain lenders, you might get the disbursed loan amount in your account within a few hours as well.
5) Flexibility in the repayment tenure:
The repayment tenure for a personal loan which is offered by various lenders usually ranges between 12 months and 60 months. However, the repayment tenure of the loan can be decided by you. You can calculate the payable EMI amount and then choose your repayment tenure on the basis of your repayment capability.
Things to Consider Before applying for a personal loan
Cons of taking a personal loan
The disadvantages of taking a personal loan can be summed up as follows:
1) Higher rates of interest:
As personal loans are unsecured loans, the risk factor associated with it is also higher. Thus, the rate of interest charged on personal loans are higher than the interest rates charged on other secured loans. Usually, the interest rates charged on personal loans range between 12% p.a. and 20% p.a.
2) Having a good credit score:
A good credit score is the first and foremost requirement for lenders when they process a loan application. Usually, a credit score which is less than 650 increases the chances of a loan application being rejected. A personal loan application is processed only if the applicant has a decent credit score as per the requirement of the lender.
3) Stricter eligibility criteria:
The eligibility criteria in case of a personal loan is usually very strict. In addition to having a good credit score, the applicant will also be required to meet the other aspects of the eligibility criteria. Some of the factors which are checked are the income of the applicant, the credit history, other active loans, credit repayment history in case he or she had taken loans earlier, and so on.
4) No flexibility in change of repayment tenure:
The lenders who offer personal loans also offer the applicants the choice of choosing a repayment tenure which suits them best. However, once the applicant settles down for a particular repayment tenure at the time of the application of the personal loan, he or she is not usually allowed to change this repayment tenure in the future.
5) High penalties:
The rate of interest at which penalties are charged on defaults or late payments of EMIs are quite high in case of personal loans.
Personal loans are a convenient way to borrow money for emergency funds, however, you should analyze your situation before applying. The above factors should also be kept in mind at the time of taking a personal loan. Personal loans are a great credit instrument to help you meet unexpected expenses. You can also apply for a personal loan through various online platforms and check all the personal loans that you are eligible for and then choose the best option as per your preferences.