Is there a personal loan you should go for? The answer is contingent on your circumstances. If you have a pressing need for cash, and have no assets but own a credit card, a personal loan is definitely recommended. This is because withdrawal from cash using your card is much more expensive than personal loaning. But if you have assets such as property, gold or shares, you should take out a loan against these assets since these loans have lower interest rates.
Pros: You get many benefits from personal loans. Here are some of the most significant.
Flexibility of use: Multipurpose personal loans. They can be used for various types of purposes , ranging from travel expenses, medical expenses, buying the latest jewelry to electronic gizmos or even improvements to house / car.
Quick availability: It is very fast to get the personal loans. You can even get the loan within 24 hours, in some cases. So if you're looking for emergency funds, then your best bet is personal loans.
Minimum paperwork required: Personal loans do not usually require a lot of paperwork relative to a home loan or car loan. Thus the processing time is faster.
No collateral or security required: this loan does not require security, and the loan tenure is much shorter compared to home loan or car loan. This comparatively carries less risk to the borrower, as if you are unable to repay the loan, your security will be forfeited in case of other loans. Your assets are safe as personal loans don't need any security. This makes loans of this kind attractive to those who don’t own any assets like car, home, shares etc.
Cons: Personal loans do have their fair share of drawbacks given their obvious attractiveness. Among the most prominent are:
High interest rates: As no protection is required for these loans, the borrowers find them high risk. These loans carry very high interest charges, to offset their risks.
No part payments: Most lenders do not require part loan payments. This means that you end up paying out the loan for the entire loan tenure. It can be quite expensive, as your initial installments are going towards interest payments.
Need for a good credit rating: Because such loans are very risky, most lenders rely on a strong credit rating from their borrowers. And if your credit rating is bad, your application would be denied due to a failure to pay any loans. Therefore the availability of this loan is subject to strict eligibility standards based on credit worthiness.
Variable loan and interest according to your credit rating: Even those lenders who offer loans to low-rating borrowers end up offering lower principal amounts and higher interest than those given to good-rating borrowers. They also impose stricter terms on those borrowers for repayment.
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