Personal loans are a kind of unsecured loan where the lender requires you to put some valuable asset as security- like your house or your car. Sometimes the personal loans do not require any type of collateral. Personal loans can include any type of secured or unsecured loan that is issues by a bank or a credit union. A “secured loan” is a type where the lender requires any asset as security whereas in “unsecured loan” there is no need to put any assets as collateral.
Mortgage and home loans are secured loans backed up by your house it means that if you fail to repay your loan, the lender can repossess your house. In unsecured loans, if debt is not backed up by any financially valuable asset then the bank can require you to pay higher interest rates. Unsecured loans are less risky than secured loan as you do not have risk of losing your home or car or any other asset that you put as a security. But the bank can sue you if you fail to repay the loan.
The personal loans are unsecured loans with no collateral required. They impose no annual fees and no repayment till 6 months. You can borrow cash loans between $5000 to $25000 as loan. Borrowed cash can be used for any purpose whether it is domestic or social. These personal loans can help you to buy your dream car or to arrange any social event like wedding function or any other family functions etc.
When does a personal loan make more sense?
A personal loan is often the best choice if you…
- Have to pay off a one-time emergency expense
- Can get a lower interest rate on a personal loan than you are paying on your credit card debt.
- Want to consolidate credit card debt and pay off all of your debt in a fixed period of time.
Pros and Cons of Personal Loans
- Quick Availability: Quick availability is one of the best advantages of personal loans. Personal loans can be used for multipurpose. Getting a personal loan is very fast and easy. You can get the loans even within 24 hours. If you are looking for immediate funds then personal loan can act as the best method to get cash.
- Flexibility: Personal loans can be used for many purposes whether domestic or social purposes. They can be used for different types of activities like travel expenses, medical expense, purchasing jewellery, electronic gadgets or buying house or cars etc.
- Fewer documents required: Personal loans do not need much documentation as compared to a home loan or car loans. Hence the processing time is quicker and faster.
- No collateral or security needed: Personal loans can be obtained without any need of security. There is no need for security is required to obtain this loan and it has the less risk. If you are unable to repay the loans, then the bank can sue you and put higher interest rates but as you do not put any prior any security, your assets are safe. This makes personal loans beneficial for those who don’t own any assets like car, home etc.
- Higher interest rates: In order to reduce their risks, these loans carry very high interest rates. These loans do not need any security, so it is more likely that they will suffer a loss in future from those borrowers who do not repay the loan on time. In order to avoid that risk, they charge higher interest rates.
- Partly Payments are not allowed: Most lenders do not allow loan payment in parts or fractions. This means that you have to repay all the amount of loan in single payment only.
- Good credit score needed: Most lenders approve only those applications which have good credit rating. As these loans are quite risky, so the lenders only prefer those borrowers which have goof credit score. If anyone has bad credit score, then your application should be rejected most probably. So this availability of these loans is strictly dependent upon the credit value.
- Loan and interest depends upon your credit score: The major drawback of personal loans is that the lenders end up offering lower principal amount and higher interest rates to the people with bad credit. On the other hand, the borrowers with good credit score receive good rating and lower interest rates. The repayment terms also varies according to the credit score.
Should you go for it?
Personal loans are however the best choice when you have bad financial days but the main question arises here is whether anyone applies for personal loans or not? The answer to this problem totally depends upon your situation. If you have immediate cash needs and you do not have assets but own a credit card, then personal loan is certainly advisable. This is because cash withdrawal using your card is far expensive than a personal loan. But if you have assets such as gold, house, property then it is suggested that you should for loan against these assets because they have lower interest rates. But before applying to any one the personal loan whether it is secured or unsecured, make sure that you will repay back the loan on due date. Lastly, also make sure that you need loan money only to pay important expenses like medical emergencies etc. It doesn’t make any sense in borrowing personal loans to finance your vacations and buying some unnecessary gadgets.
“It is very important for you to know the cons and pros before applying for a personal loan. Don’t let yourself get trapped in the never ending loan cycles.”