While a personal loan may be an easy solution to borrow money in an emergency, it is important to understand their dark and deceptive nature as well. While these loans can be raised within a short notice period, they also draw huge amounts of interest along with a host of charges.
The processing fee while applying for the personal loan falls in the range of 1-2 % of the entire loan amount. Combined with late payment charges, pre – payment penalties and other unwarranted expenses, personal loans serve as a costly bet for a borrower in the long run. Due to the unsecured nature of the loan, a borrower can borrow funds without collateral thus making it a risky bet for the lending organization.
This is however compensated by the lending organization by way of extracting a higher amount of interest on the loan, burdening the borrower. It is because of these risky financial aspects that personal loans are referred to as the costliest access to money after credit cards in India.
Hence, borrowers must refrain from borrowing personal loans at all times, except for situations where they have already exhausted safer borrowing options like a home loan, car loans, etc. Personal loans can also be taken to refinance liabilities, when trapped in high cost debts.