All You Wanted To Know About Personal Loans But Didn’t Know Who To Ask!
The cost of living is skyrocketing and your monthly income feels inadequate to meet the expenses. In touch times a personal loan may come as a boon. There are a few people who still get alarmed at the mention of the word ‘loan’. This happens because of their conditioning and their perception of “going in debt” to meet the expenses. However, this scenario has seen a sea change over the last decade or so and the credit must go to personal loans (no pun intended!)
Whether you should take a personal loan or not depends upon your need and circumstances. There is an array of personal loan options available in the market to choose from depending upon your need. A personal loan is among the easiest ways to meet your sudden or immediate cash requirements. That said, there are still some questions about this financial instrument. For those wondering about the answers to those questions, here is a list of all the pros and cons of personal loans. This will help you decide to pick a personal loan or not.
Pros of Applying for a Personal Loan
The ease and flexibility of applying and acquiring a personal loan is a boon for people who want to fulfill their immediate or sudden cash needs.
1. Easy Availability
A number of Non-banking Financial Companies (NBFCs) and every nationalized and private banks offer a range of personal loans. The market is awash with options to choose from as per the demands of your circumstances. All you need is to approach a financing institute, whether it’s a bank or an NBFC, and get it sanctioned.
2. Quick Approval
Personal loans are generally approved within a very short time frame, usually no more than 24 hours. Yes, it is that quick to get a personal loan sanctioned and disbursed. The speedy process makes it a lucrative option to support the urgent need for cash.
3. Minimum to No Paperwork
Unlike other loans, personal loans don’t ask for too many documents hence making it easier to apply for, quicker to be approved, and rolled out.
4. No Collateral Security Required
This makes personal loans a less-secured but perhaps more attractive credit option compared to the other options available in the market. One doesn’t need to take a personal against any asset. This helps in keeping your assets safe. People with less-defined assets or collateral security are benefitted the most with this option.
5. Flexible Term
The borrower has the flexibility to choose the repayment tenure within a narrow band. This term is generally between 1-5 years. This helps in reducing the burden of repayment and planning the future finances better.
Cons of Applying for a Personal Loan
Every coin has two sides and personal loans are no different. There are some downsides too.
1. High Interest Rate
The interest rate is the biggest deterrent while applying for a personal loan. Irrespective of the need for the personal loan, people end up paying a blanket rate of interest. The typical rate of interest on personal loans in India may work out to between 15% – 18% of the loan amount. This adds up to a large sum, even if the need or requirement is for something small. The rate of interest is often decided by the applicant’s credit score. That in itself could be an issue for someone who is less embedded into the banking system in the country –as is the case with most people from the rural areas and smaller towns.
2. Specific Purpose
When applying for a personal loan, one usually has to clearly state the purpose for which the loan is being taken. The approval of the loan may depend upon the purpose. Loans for the more well-known causes like weddings, house repairs etc. tend to get easily sanctioned whereas taking a loan for the more unusual, but still, important causes like paying for your kid’s tuition fees or an upskilling training course might not get approved that easily.
3. No Competition
The rate of interest is usually higher because of lack of or negligible competition amongst the lenders. People are wary of approaching lesser known or smaller financing institutions and they prefer taking a loan from the banks or NBFCs they are already associated with. The borrower, thus, typically approaches a specific financial institution and to that extent, is locked into that choice. Most of the financial institutions offer a personal loan at almost similar rates of interest.
4. No Part Payment
Although the borrower has the flexibility to choose repayment tenure, most financial institutions don’t allow changes after sanctioning the loan. A borrower might have occasional spikes in disposable income that may be enough to repay a part of the loan but the rigidity of the payment options will now allow them to take advantage of that unplanned availability of funds.
5. High Processing Fee
The processing fee varies depending upon the amount of loan applied for. As a general trend, this is not a small sum. Since this needs to be paid upfront, the borrower ends up getting a lesser amount of funds than what he had applied for.
Norman Ralph Augustine joked, “It’s easy to get a loan unless you need it. “ In this day and age of personal loans and options like our very own PayOpt that’s no longer true!
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