Is getting a personal loan the best solution to your financial problems?
With increasing responsibilities and inflation in the cost of living, availing a personal loan seems to be the quickest and most viable solution to meet your financial needs immediately. Needless to say, it is a huge commitment and requires a certain amount of responsibility at one’s end. All things considered, whether or not it is right for you depends completely on your ability to benefit from the perks while balancing its discreet negative aspects.
Given below are the pros and cons associated with personal loans to help you understand the process better and thus make a well-informed decision:
Pros of a Personal Loan:
The most lucrative advantage of a personal loan is the freedom to use it any way you like- be it for vacation, to cover medical expenses, to buy new furniture, or to pay off previous loans- as long as it is legitimate.
With the new fast-track personal loan feature, banks and private lenders disburse the amount within a day, as long as all your documents are in order. Owing to this quick processing, a personal loan can save the day easily in case of financial emergencies.
No collateral or security required
The approval of your personal loan relies solely on your creditworthiness, so you do not have to worry about offering any collateral or security to avail the loan.
In order to make the disbursal quick and easy, most lenders follow a simple pattern for documentation. All you need to provide for an easy personal loan is the proof of income, identity, and address, and you are good to go.
Flexible Repayment Period
With terms typically ranging from 1 to 5 years, you have the freedom to choose an option that best suits your repayment capacity, so that there is no or substantially reduced burden of repayment.
Cons of a Personal Loan:
Since personal loans are unsecured, they come with a higher interest rate typically ranging from 12 to 20% per annum. This interest rate is 2 to 3% higher than other secured loans, which consequently results in higher monthly installments to be repaid.
High Processing Fee
A certain percentage of the loan amount to be disbursed is levied as the processing fee by most lenders. This fee is usually higher in case of unsecured personal loans; as a result, you get a lower loan amount than what is actually requested.
Strict Eligibility Criteria
Lenders are very strict in terms of eligibility criteria to make up for the loan’s unsecured nature. Generally, banks require a certain level of income and good credit score to even consider a loan application.
No Change Policy
While you have complete freedom to choose the repayment period as you deem fit, some lenders have no change policy, i.e. you are not allowed to change the terms later on. So, you have to pay the preset monthly installments for the entire duration and cannot choose to make pre or partial payments if something comes up. Also, in case you miss the EMIs, it may lead to legal complications. It is, therefore, advisable to cross-check any such terms beforehand.
Keep these pros and cons of personal loan in mind to decide whether it is the best option to fit your financial needs. In case it does seem like the right choice, make sure to pay your EMIs on time, as your credit score may improve or ruin depending on how you manage your monthly installments.