Personal loans have become a popular financial tool for many individuals seeking quick access to funds. Whether you need money for an emergency, a major purchase, or consolidating debt, personal loans offer a convenient solution. However, like any financial product, they come with their own set of advantages and disadvantages. Understanding the pros and cons of personal loans can help you make an informed decision about whether they are the right choice for your financial needs.
What Is Personal Loans
A personal loan is a type of unsecured loan provided by banks, credit unions, or online lenders that allows individuals to borrow a fixed amount of money for personal use. Unlike secured loans, personal loans do not require collateral, meaning you don’t have to put up an asset like your home or car to secure the loan. Instead, approval is typically based on your creditworthiness, income, and ability to repay.
Pros Of Personal Loans
Multiple Usage
Online Personal loans have been one of the most opt for loans to fulfil emergency needs as well as dreams. Almost all other loans have a definitive task to follow. However, the personal loan amount can be used for anything you wish. This undoubtedly happens to be one of the most loved features of personal loan. In the course of loan processing, you don’t even need to specify the requirement to the bank authorities.
No Fixed Limits
In the case of a personal loan, there is no limitation on the amount for which you can apply. The amount of loan depends upon your wish and requirement. The amount of loan can vary from case to case. However, the amount of sanctioned loan solely depends on the lending authorities. If your credit history is good, the chance of getting your amount approved won’t be a problem.
Faster Processing
Banks and other financial institutions have come up with faster loan processing schemes in which the personal loans can be processed on the same day of application. If at all you come with all the required documents, the loan can be processed in a couple of hours but after complete verification of all the submitted documents. Nowadays, most of the banks are offering pre-approved personal loans with no documentation involved. These facilities will undoubtedly help you in the time of need and emergency. Check online personal loan eligibility and get an idea of repayment using a personal loan calculator before thinking of applying for a personal loan.
No Collaterals Involved
Banks, on no occasion, ask for guarantees while disbursing personal loans. Personal loans can be availed by anyone who meets the requirements and has a decent credit history without having to deposit anything in return.
Simpler Documentation
Almost all the banks and NBFC follow a straightforward documentation process. This approach makes it easier for applicants to get their loans sanctioned in a very less amount of time. A primary identity proof, residence proof, and documents related to employment are enough for personal processing loans.
Flexible Terms
The challenging part of the loan system is the repayment scenario. Banks offer a very flexible repayment schedule for personal loans. You can choose the amount of EMI and the number of EMI in which you can pay back the principal as well as the chargeable interest.
Cons Of Personal Loans
High Charges of Loan Processing
Banks and NBFCs charge a very high amount of processing fees, which is likely to be a percentage of the total loan amount. As personal loan comes under the category of unsecured loan, the processing fee is on the higher side. The applicant can choose to pay the processing fee directly or can ask the bank to deduct it from the loan amount at the time of disbursement.
Higher Rate of Interest
Banks and NBFCs charge a higher rate of interest on personal loans. This is only due to the fact personal loans are not secured. The interest rates vary in the range of 12% to 20%. This amount is undoubtedly higher than any other loans. If you don’t have the adequate resources, then repayment of personal loans is a bit difficult.
Strict Criterions
Banks and NBFCs follow a stringent set of rules and eligibility criteria to approve personal loans. The verification process is very rigorous. The banks hire third-party agencies to carry out the verification process. A lot depends upon the credit history of the applicant. If it is impressive, then it is well and good, and if it is not, then the banks will surely refuse to sanction the loan.
Rigid Repayment
Despite the fact banks and NBFCs allow the applicants to choose a flexible repayment schedule, but once it is selected, they don’t allow any more chances. So it is advisable to check all the necessary terms and conditions before filling a loan application.
It can be a smart choice to compensate for an emergency, but at the same time, you need to be smart enough to go with things that come along.
Read Also:Â Choosing Between Longer Repayment Tenure and Higher EMI for Personal Loans
