New developments in various fields have added value and convenience to our lives. We can accomplish more things with more options to overcome the issues faced. The financial sector has also undergone vigorous advancements which have enabled the institutions to offer more financing facilities than ever before.
Numerous options are available for businesses as well as individuals from different backgrounds and fields. Also, these facilities are available for fulfilling different purposes. If anyone needs to buy a car, house or an appliance or need money to finance a wedding in the family, then there will be some facilities offered by banks for the required purpose.
One such facility is a personal loan in which a person can get a loan and then pay monthly installments for the mutually agreed period which usually goes anywhere from 1 to 7 years. These loans are unsecured which means collateral is not required to avail this loan.
So you don’t have to provide any asset as a security to the bank to get this loan. Although some banks can restrict to be used for some specific purposes generally you can utilize the funds for any purpose as you like.
You can apply for a personal loan by visiting any bank and the procedure is also very straightforward. You fill out a prescribed form and provide your details and documents. Bank will check your credit history and after all, requirements are complete, you will either get the funds credited into your account, alternatively, you will get a cheque which you can deposit in your account.
Although personal loans look attractive, it’s very important to look at their benefits and disadvantages before applying for one to avoid any inconvenience.
Pros of Personal Loans
Here have a look at some pros of personal loans:
Freedom of Spending
Most of the personal loans are free from any requirement of spending. That means you can freely spend the funds wherever you want and fulfill your most important needs. This flexibility makes personal loans a very attractive financing facility as no spending restriction means no unnecessary documentation and monitoring by the bank.
As if you take an auto loan from the bank the only thing you can do with that loan is to buy a car and then submit all the documentation to the bank which takes a lot of effort but personal loans are free from all such hassles.
Lower Interest Rates
Personal loans are available at lower interest rates as compared to other facilities available with similar features. If you use your credit cards to finance your projects, first that will use a major part of your limit up, and also the markup charged will be much higher than that of the personal loans.
This will result in a poor financial position which can become worse over time. But with a personal loan, you not only have to pay a fixed monthly installment which costs much lower than that of credit cards but also keeps your credit card limit available for day-to-day needs.
No Collateral Requirement
Personal loans are free from any kind of collateral requirements which means you don’t have to provide any security to the bank for availing of a personal loan. This way none of your assets like your car, house, or any other valuable asset is subjected to risk while you take a personal loan.
In case you are unable to pay for a personal loan due to any reason at any point in time, your assets would be safe and you only have to worry about arranging for payment rather than losing your assets.
The structure of a personal loan is quite simple making it easier to manage than other facilities. Like in the case of credit cards, if you spend more during any month then you will have to pay more which can disturb your monthly spending cycle. But in the
In cases of a personal loan, you only have to pay a fixed monthly installment which is easier to plan and arrange.
Cons of Personal Loans
With the above-mentioned pros, personals loans also come with some cons which are important to address before availing of it.
Higher Interest Rate than Alternatives
In the case of individuals with poor credit history, the bank can offer higher interest rates or some kind of collateral before offering the loan. Also as a personal loan is a general type of facility with no restriction on spending, it can cost more than other facilities like
Availing Auto or House Finance
So before applying for a personal loan, it is very important to evaluate the requirement. If you require it for any purpose for which another dedicated facility is available then it’s better to go for it rather than availing a personal loan.
High Fees and Penalties
The higher convenience of personal loans comes with higher processing fees and penalties. Most banks charge certain processing fees for providing personal loans and impose penalties in case of any instance like late payment of installment or paying off the loan before time. All such information should be gathered and studied before going for a personal loan.
Higher Payments than Credit Cards
In the case of credit cards, you can control your monthly payment by squeezing you’re spending, but in the case of personal loans, there is no such case. You have to pay the full amount of the monthly installment irrespective of the amount of money you have spent from the loan amount. Also if you make the payment of the due amount of your credit card within the grace period after the due date, no interest is charged but there is no relief from the
interest in the case of personal loans.
Higher Debt Burden
Personal loans are availed and consumed in a short time and then installment has to be paid every month throughout the tenor of the loan. That creates a burden on your monthly budget as a fixed amount goes to the installment.
We can have some relief in the case of credit cards in the months when we didn’t use them but installments have to be paid without a break.
Personal loans are a good financing facility that should be availed after careful evaluation of the requirement and repayment plan. If availed responsibly, can come in handy in the time of need.