What works for a personal loan and what doesn’t?!

By BankBazaar | February 25, 2014

Everyone of us think about personal loans  whenever there is a sudden or short term financial requirement As part of an unsecured loan, personal loans are a great financial tool when faced with financial dilemma including overdue credit card woes to meeting personal financial difficulties, or occasions like wedding. Various public and private sector banks offer personal loans to its customers after checking their credit score and past repayment history. Just as every coin has two faces, personal loan come with their intrinsic set of advantages and disadvantages. While they provide users the options to ride over a financially difficult time, there are a number of distinct drawbacks as well. Let us take a look at some of the advantages and disadvantages of personal loans.

Advantages of Personal Loans:

  • Easy Availability: Easy availability is one of the biggest advantages as far as personal loans are concerned. When in need of urgent funds, personal loans can be cleared as soon as one working day provided all documentations are in place. In case of any financial emergency, the loans that can be secured quickly are worth their weight in gold and personal loans offer a clear advantage in this regard. The options are endless as all public and private sector banks along with various non banking financial institutions all offer personal loans to the consumer.
  • No Collateral and Less Paperwork: Personal loans are quick to be administered because they do not require elaborative paperwork. As part of unsecured loans, personal loans do not require any collateral or security as part of the loan process. Without offering any collateral, personal loans reduce the risk for the borrower in case of any defaults.
  • Flexibility of Using Money: Personal loans unlike a lot of other dedicated loans are multipurpose and funds raised can be used for a wide range of works without any cap. From using funds at a family wedding or medical expenses to bypass a hard credit cycle of credit card dues, personal funds can be used as per the wishes of the customer making them serve a wide range of purpose.
  • Availability of Personalized Schemes: Both banking and non banking financial institutions offer various personalized personal loan schemes for their clients at regular intervals. Personalized schemes are usually offers for government employees, working professionals like doctors, architects and charted accountants offering them lucrative interest rates for personal loans.
  • Wide Range of Funds: Personal loans are available from as low as Rs 15,000 to as high as Rs 10, 00,000 and sometimes even beyond. The wide range of funds means various applicants with varying financial needs can apply for personal loans.

Disadvantages of Personal Loans:

  • Strict Eligibility Criteria: The eligibility criteria for personal loans are usually quite strict compared to other loans. Being an unsecured loan, banks and other non banking financial institutions have strict guidelines to accept or reject a personal loan application. The guidelines vary from one bankto another but a sound financial and credit history are absolutely necessary to avail any personal loan. Anyone with a poor credit rating is not likely to get the bank’s nod for availing any personal loan. What’s worse with a bad credit history, no bank is likely to accept the loan applicants request for a personal loan.
  • High Interest Rates: Personal loans charge high interest rates as they are part of unsecured loans. The bank has no security in case an applicant defaults on the repayment of the loan. To safeguard the bank’s financial interest, personal loans come with a higher rate of interest compared to other loans.
  • Lack of Part Payment Facility: Another big disadvantage with personal loans is the fact that most banks and financial institutions offering personal loans do not allow partial repayment options. This means effectively the applicant ends up paying the EMI for the entire tenure of the loan.

Things to keep in Mind before Taking a Personal Loan:

Personal loans are a good financial instrument for people faced with an immediate financial crunch. Personal loans have their benefits and flaws depending on the reasons for availing such a loan. In case you have decided to take up a personal loan, make sure that you check a few banks before finalizing the loan. Different banks have different interest rates for personal loans. Some of them could even be offering some incentives for people with specific professions. Once you finalize the bank for your personal loan, make sure you read all the fine print before signing up for the loan. Make sure you are aware of all information regarding service charges, hidden charges and all foreclosure charges.

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.

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