A personal loan is money borrowed from a bank, online lender or any financial institution, with a promise given to repay it in fixed monthly payments or instalments. This payment period can extend from two to five years. The lenders’ rate of interest on the repayment can range anywhere from 6% to 36%.
Many personal loans that are available in the market are not secured, i.e. they are not backed by collateral, unlike other investments, where a show of collateral is crucial. However, you can use the money received as a personal loan for any reason.
Finance experts claim that personal loans can come in handy if you are looking forward to fulfilling any aspirations or short-term goals such as travel, home renovation, weddings, etc. Some of the reasons why many opt for a personal loan is the flexibility, liquidity, and customization that it offers. A personal loan is known to be a multi-utility and all-purpose loan. This feature allows it to be used for absolutely anything or for any emergency.
Below, we mention some of the critical points of a personal loan that will help you decide if it is a boon or a bane.
Some of the advantages of a personal loan are:
- Approvals are quick
- No need of a guarantor or security deposits of any kind
- Easy documentation
- Reduced interest rate
- Pricing as per the market
- Straightforward procedure
- Uniform rate of interest throughout the loan tenure
Some of the disadvantages of a personal loan are:
- Rate of interest is higher
- Collaterals are not required
- CIBIL score gets affected
- Track record is thoroughly for any previous loan and related payments
Keeping all the points mentioned above in mind, the real question is whether you should incur a personal loan.
Well, the answer is not definite. Opting for a personal loan highly depends on your current situation, needs, and the brevity of the situation. However, before you choose a personal loan, it is advised to study the terms and conditions thoroughly. Also, before you opt for a personal loan, get a clear picture of your income and weigh your other liabilities carefully. Seek an expert’s help to plan the repayment foryour investments. If the legalities of personal loans are not followed systematically before and after seeking the loan, then it can land you in a legal tug with the lender.