Personal loans can be termed as the instruments of credit that are used by an individual at the time of a financial truth. This is one of the easiest and fastest retail loans. But as we know that everything has their own advantages and disadvantages. It also applies for personal loans as well. The pros and cons of personal loans can be summed up by Free Financial and Investment Assistance Portal, Moneymindz.com below.
Pros Of Taking A Personal Loan
The advantages in relation to taking a personal loan are as follows:
1) No Bindings In Regard To Spending:
One of the biggest advantages of a personal loan is the fact that it can be spent for any purpose. The other forms of loan are restricted in terms of how it is being spent. Let us look into an example, home loans are used only for the purpose of building or renovation of a house. Generally, personal loans do not limit the utilisation of the money. It is used for any purpose right from paying off bills to paying tuition fees or even going for a vacation.
2) No Need For Collateral:
Usually, personal loans are unsecured loans. You will not be required to provide any collateral against the loan that you take. Also 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 can apply for a loan amount which is sufficient as per your requirement. We get to see that mostly lenders have a lower limit and an upper limit on the basis of which loan applications can be made. As per your requirement if the amount 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 can be seen processing really fast. It takes only a few days to approve, process, and disburse the loan amount in most cases. You might get the disbursed loan amount in your account within a few hours as well in case of certain lenders.
Cons of Taking a Personal Loan
Disadvantages of taking a personal loan can be summed up as follows:
1) Higher Rates Of Interest:
As you know that personal loans are unsecured loans, the risk factor associated with it is also higher. The rate of interest charged on personal loans is higher than the interest rates charged on other secured loans. The interest rates charged on personal loans range between 12% p.a. and 20% p.a.
2) Having A Good Credit Score:
Good credit score is the first and foremost requirement for lenders when they process a loan application.. Therefore, a credit score which is less than 650 increases the chances of a loan application being rejected. Personal loan application can be processed only if the applicant has a decent credit score as per the requirement of the lender.
3) Stricter Eligibility Criteria:
In case of a personal loan the eligibility criteria is usually very strict. Also in addition to having a good credit score, the applicant will also be required to meet the other aspects of the eligibility criteria. Some factors that 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) High Penalties:
We can see that the rate of interest at which penalties are charged on defaults or late payments of EMIs are quite high in case of personal loans.
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