A personal loan is a quick fix to an array of both personal and professional needs – be it funding a medical emergency, financing your child’s education expenses, consolidating all debt payments into one or making a big ticket purchase such as buying yourself your fist house. Usually, this type of a loan doesn’t require you to pledge any collateral with a bank and is an easy mode of financing, considering you comply with a few pre-set parameters.
These include a good credit score (generally, a score of 750 or beyond is considered good), age, employment status, a steady source of monthly income, etc. Eligibility for a personal loan depends on these, and should you meet the standards, you would qualify for this loan that can offer an instant flush of liquidity.
That being said, everything’s not rosy with a personal loan and there are a few downsides to it as well. The remainder of the article tries to weigh in the pros and cons of a personal loan, such that you can arrive at a smart decision when the time comes:
1. Multi-purpose loan
A distinctive advantage of a personal loan is that it is multi-purpose; a financial product that can help you meet a number of obligations, no matter their type of scope. From allowing you to fund your child’s education expenses to purchasing a swanky car that has taken the market by a storm, a personal loan can help you do it all.
It is with good reason that a personal loan is often referred to as the ‘Jack of all trades’.
2. No collateral required
Unlike many other loans, a personal loan doesn’t warrant you to pledge any asset (personal or business) as collateral in order for you to be eligible for it. A personal loan, by virtue of its easy eligibility criteria and it entailing simple prerequisites, is convenient financing for a range of needs.
3. Adequate loan amount
There is no fixed cap on the amount that you can take out. This essentially means that you can apply for and hope to avail the desired loan amount to meet your obligations, considering you meet the eligibility criteria and assure the bank of your repayment capability.
4. Quick approval process
Banks have started to fast-track the process of personal loan approval and it follows that you can take out the loan within as less as a day, considering you complete all the documentation and comply with the bank’s eligibility parameters. This advantage of a personal loan stands out in dire times when all you need is quick, hassle-free finances.
1. High rates of interest
Generally, a personal loan is subject to higher rates of interest, because of the simple reason that it doesn’t warrant you to put your assets on the line. This can make repayment of the loan problematic, should you not have adequate resources at your disposal.
2. Stringent eligibility parameters
The stringent eligibility criteria also hinge on the fact that a personal loan is usually unsecured in nature. Banks generally look at an appropriate monthly income level before approving your application. Besides, your credit score plays an important factor as well wherein a sub-par score can mar your chances of availing the desired loan amount.
3. Rigidity in repayment
While the provision to choose a flexible repayment period is there for the taking, banks aren’t too accommodating when it comes to you tampering with that schedule. This almost takes pre-payment or part-payment out of the equation – meaning that you would have to stick to repaying the amount over the entire tenure of the loan.
No doubt a personal loan is a convenient mode of financing for you to address a range of obligations. But the only prerequisite here is that you should bear these pros and cons in mind before opting for one, such that financial freedom meets prudence along the way.