Pros and Cons of Personal Loans

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Pros and Cons of Personal Loans
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• When it comes to overcoming a financial crisis,
  personal loans always emerge as the first choice
  among borrowers. Whether it's a month-end cash
  crunch, day-to-day expense or a significant
  emergency, a personal loan can help you take care
  of all these expenses and much more. Over the
  past few years, the number of personal loan
  lenders in India has also increased significantly
  to meet the burgeoning demand. There are many
  types of personal loan lenders as well. You can
  approach traditional lenders like banks, opt for
  NBFCs or try out FinTech lenders known for their
  technological capabilities. In addition, there
  are different types of personal loans, such as a
  low-salary personal loan and a personal loan for
  wedding. This blog discusses two advantages and
  disadvantages of a personal loan. Read on

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Advantages
1.Unsecured Source of Funds

• The primary advantage of opting for a
  personal loan to get emergency funds is that you
  don't have to worry about collateral. Unlike home
  loans or automobile loans, you don't have to put
  up security against your personal loan. As long
  as you meet the set eligibility criteria, you can
  apply for one. Then, once your application is
  approved and you receive the loan amount, you can
  go ahead and use it to meet your financial
  requirements.

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2.Flexibility in Usage

• Another great advantage of taking out a personal
  loan is that you can use it to meet various
  needs. If your monthly income isn't that you're
  trying to overcome a cash crunch, then a low
  salary personal loan is what you need. A personal
  loan can help you with medical emergencies,
  high-interest credit card bills, home repairs or
  even a solo vacation if you need one. This is
  highly convenient looking at other loans such as
  a car loan/home loan). With these loans, you can
  only use the loan amount to purchase a car or a
  house and nothing else. A personal loan, however,
  doesn't carry such restrictions.

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Disadvantages
1.High Interest Rate

• If you have a good relationship with your
  previous lender and have repaid your loan on
  time, then reapply for a personal loan to the
  same lender. They will offer you lower interest
  rates as the lender is aware of your credit
  behaviour and will want to retain you as a
  customer. That being said, you may not always be
  able to reapply with your previous lender. In
  such cases, we suggest that you look for a new
  trustworthy lender.

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2.You Need a High Credit Score

• Most lenders that offer a personal loan look for
  a credit score of 700 in their applicants'
  profiles. Again, since a personal loan is
  unsecured, it is a high-risk proposition for your
  lender. So, they will only sanction such loans to
  people who have good creditworthiness and a
  strong credit score. If you don't, be prepared to
  get a loan offer with a slightly higher interest
  rate.

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In Conclusion

• The above points illustrate two of the primary
  advantages and disadvantages of a personal loan,
  which will help you make a more well-informed
  decision the next time you need to borrow. Even
  if it's a low salary personal loan, ensure you
  apply for one only in an emergency and if you
  possess the repayment ability for it.

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