Merits and Demerits of Personal Loans

The need for a loan entirely depends on the amount required and the assets at one’s disposal.  It is not possible for everyone to have access to assets like gold, property which can be used to get loans.  If one doesn’t have any such assets except a credit card and need money to meet some emergencies, then personal loan is a better choice than taking a loan on the credit card as it would prove to be expensive.

Personal loans, as the term indicates can be used for fulfilling personal use which in other terms means that there is no specified purpose of the loan.  If loans have to be acquired within a short period of time then personal loans are the only choice.

Benefits of personal loans

• Personal loans wouldn’t need too much documentation like other forms of loans.  They also wouldn’t need much processing time and are quickly obtained.
• A simple application form can get one a personal loan.  As these loans wouldn’t need a security or collateral the loan can be obtained within 24 hours.
• A savings account with the bank is mandatory in order to get the loan.
• Personal loans are multipurpose loans.  The banks do not have to know the purpose of the loan.  So whether it is a medical emergency, a holiday, a vehicle repair anything can be the end means for the loan.
• It doesn’t involve any insecurity if not repaid on time as there is no security deposit, so the asset is not lost.

Demerits of personal loans

• As they are offered with no security, the interest rate is generally higher as there is high risk involved too.
• Banks and lenders generally do not accept the loan repayment in parts.  As it involves high risk the amount has to be paid for the entire tenure of the loan.  The initial payments compromise only interest repayments and as the tenure of the loan is reaching its close then the payments would be considered towards the principle amount.
• Customers should have a good credit score in order to be eligible for the loan.  A credit score is given to the customers based on the usage of their account and repayments for credit card and any other outstanding loans.
• Some banks and lenders also vary the interest rate charges based on the credit rating of the customer.

Personal loans & other loans

When compared to other loans personal loans are steeper when it comes to repaying them because of the interest rates.  Gold loans or loans on property on the other hand are much cheaper.  The interest rate charged for these loans is lower as the gold or property would serve as a security for the loan taken.  In case the customer fails to repay gold or a loan taken against property, the assets would be seized towards the loan repayment.  As there is no such security provided for personal loans, loan providers generally charge very high interest rates and the amount would also continue for the entire tenure.