We’ve all thought about getting a Personal Loan once. Maybe it was to fund a solo vacation or to go on a family trip.
A Personal Loan can assist you in ways you could never have imagined. It’s one of the most sought-after loans and is relatively easy to acquire. Sometimes, when you’re going through a rough financial patch, a Personal Loan might exactly be the help you need. If you’re thinking of a credit card, then you should know that taking a Personal Loan for big financial needs is a better option.
Also known as an all-purpose loan, a Personal Loan can put an end to any financial problem that you’re currently facing or might have in the future. However, it isn’t all sunshine and rainbows when it comes to Personal Loans; they come with their own share of setbacks that may not be immediately visible to an applicant.
Here is a list of both the pros and cons of a Personal Loan that will help you understand this debt type better.
What is Personal Loan?
A Personal Loan is an unsecured loan, issued by a bank/NBFC to an applicant. Unsecured loans work a lot like credit cards. Since there is no collateral involved, you are likely to be charged a higher rate of interest because of the larger risk that the bank/NBFC has taken. It’s less risky for the borrower, but a little more financially over-powering. However, remember that you are punishable by law if you default on your repayments and the bank/NBFC might even sue you to get back the loan amount.
When to Opt for a Personal Loan?
If you’ve decided that a Personal Loan is for you, comes the issue of when to apply for one. Personal Loans don’t take much time to get approved, so it shouldn’t take you more than a week or so to get yours sanctioned. Selecting a lender and the amount you want depend on your financial goals and your need for the loan.
Pros. of a Personal Loan
- Flexibility of use is the most important benefit that you get out of Personal Loans. You can use a Personal Loan for almost anything—be it a vacation, buying your dream car, or renovating your home, or even your child’s education.
- Minimal documentation is needed to acquire a Personal Loan. You need identity proof (your passport, your driving license, or even your Pan card), address proof or proof of residence which includes your electricity bill, gas bill, or even your telephone bill, and finally, proof of employment. You will also need to submit bank statements of the past 6 months or a year, as requested by your lender.
- Personal Loans can be procured quickly because minimal documents mean minimal process time, sometimes less than 24 hours. This means that Personal Loans are a great option when you’re in urgent need of money.
- You don’t have to submit any collateral when you’re applying for a Personal Loan. This means you don’t run the risk of losing an asset should you default. However, you might have to pay penalty charges if you don’t make timely EMI payments.
- The tenor and upper limit provided for Personal Loans is also favorable to most borrowers. A Personal Loan starts at ₹15,000 and can go up to ₹10 Lac or even higher in some banks/NBFCs. The tenor of a Personal Loan typically lies between 12 and 60 months.
Cons. of a Personal Loan
- Outrageous interest rates are the foremost feature that comes to mind when anyone mentions a Personal Loan. They can go higher depending on your credit score and financial standing. Keep an eye out for how much you’re being charged and calculate your EMIs in advance. You can use Personal Loan EMI calculators to help you with the same.
- Personal Loans are often sanctioned after you have paid a processing fee, service fee, and some may even include an origination fee. Make sure you’re aware of all these hidden costs as they can come back later to burden you unexpectedly. These can be easy to miss if one doesn’t compare lenders. Some banks and NBFCs may offer a loan with a low rate of interest but may charge a high processing fee.
- Part prepayments can be a costly affair when it comes to repaying Personal Loans. Although the RBI has ordered banks and NBFCs to not charge prepayment charges, some lenders might still levy them. Be careful while signing up for the loan and ensure that your lender does not levy any prepayment charges.
These are some of the pros and cons associated with a Personal Loan. Go through them thoroughly before you approach a financial institution for taking a Personal Loan.