A personal loan basically refers to a particular type of unsecured financial source of loan which can benefit an individual by fulfilling all the present financial requirements. One does not require pledging any kind of security or collateral sources while availing the services of a personal loan.
The respective lenders of various individuals can serve the purpose of providing the flexibility of using a wide range of funds based on one’s requirements at different points of time.
| Benefits of Personal Loan | Drawbacks of Personal Loan |
| Ensures extreme range of versatility | Chances of getting trapped in debt cycles |
| The rates of interest are usually decent | Tends to have higher interest rates |
| Beneficial for debt consolidation | Origination fees are required |
| Offerings made by various lenders | Penalization for paying off early |
| Offerings made by various lenders | Fixation of payments and loan terms |
| High chances of attracting scammers |
Advantages of Personal Loan:
• Ensures extreme range of versatility:
A personal loan is seen to serve their purpose for a wide range of activities unlike car loans or student loans. The personal loans can be used for clearing the amount required for car maintenance, medical expenses, dream vacations and for various other reasons.
However, it is also advised at the same time that the versatile nature of such personal loans should not be misused and should not be targeted for using them for almost anything and everything.
• The rates of interest are usually decent:
The rate of interest for the personal loans are finalized to such an extent that can be favourable for almost everyone as compared to the high loan rates that are decided for the credit card usage. It has been shown in various situations wherein the personal loan interest rates are seen to range roughly within 6 to 7 percent for most of the creditworthy customers.
• Beneficial for debt consolidation:
One of the major reasons why the personal loans have earned the much deserved fame is the fact that they have proven serve the purpose of allowing the individuals to pay off higher rates of interest for clearing off the particular credit card oriented debt. While doing so, one can easily lower their monthly payment facilities along with creating a significant reduction in the interest rates.
• Offerings made by various lenders:
Apart from the wide range of facilities which are provided by the traditional banks as well as the credit unions, in today’s modern world, an individual can easily avail similar services from the credit unions as well as the online banks.
They can definitely provide the most top-notch services pertaining to providing personal loans to a wide range of customers.
• Excellent credits are not needed:
It is quite possible to get hold of various personal loans and it’s probable services with the help of bad credit. Therefore, some lenders can definitely provide the borrowers with a lesser than great amount of credit facilities. With the help of higher rates, excellent credit is definitely not required for availing the personal loans.
Disadvantages of Personal Loan:
• Chances of getting trapped in debt cycles:
In such situations where the personal loans and it’s services are used only for the purpose of debt consolidation, it should be kept in mind that the previous debt has not been cleared completely and it just looks a little bit different.
If one wishes to wipe out their credit card oriented debt consolidations with the help of a personal loan, this can ultimately result in creating a big hole where one get trapped in such debt cycles.
• Tends to have higher interest rates:
There are many such scenarios where the personal loans are seen to be advertised at extremely lower rates of interest, but such advertised policiesare often found to be the best rates that can be easily availed by various individuals. Therefore, the borrowers should be completely sure regarding the best rates that are available in the market so as to avoid any kind of losses.
• Origination fees are required:
Personal loans often come up with a wide range of origination fees which might roughly amount to 1 or 6 percent of the total amount that has been borrowed. It essentially covers the expenses of processing the loan faculties or are taken out from that particular amount which may have been disbursed to the borrower.
• Penalization for paying off early:
The prepayment penalty is usually charged during such situations where the individuals are seen to retire their balance amount before the loan termination is over. Therefore, this is something that one must look out for when purchasing the home loans and clearing off the required debt consolidations.
• Fixation of payments and loan terms:
While the fixed rate of payments that are done on a monthly basis are seen to serve their role as a plus point for many borrowers, they can also serve as a challenging aspect for many customers who are used to smaller amounts of minimum monthly expenses and thereby having as many years as possible to pay off such credits.
In such situations the personal loan facilities can serve as a drawback for many because the lenders of such unsecured loans might sue such individuals.
• High chances of attracting scammers:
Scams are quite common in the world of personal loans which can bring about a financial downfall for a large number of borrowers of such loan policies. Therefore, precautions must be taken in every step wherein the lenders as well as the brokers can get themselves authentically registered so as to avoid any such fraud scenarios.
Conclusion:
The concept of personal loans has been a prevailing aspect for quite some time now and has therefore attained a significant amount of prominence in the present times. They have served their role in benefiting a large number of individuals on a worldwide basis because they are extremely versatile for supporting various financial causes, but however some precautions should be taken while availing the same.
Similar Posts:
- A Smart Guide On Using Credit Card To Finance Your Small Business
- How to Hire a Debt Collector: Essential Tips for Success
- 20+ Difference between FHA And Conventional Loans (Explained)
- 20+ Difference between Personal Loan And Line of Credit (Explained)
- 20+ Difference Between Subsidized And Unsubsidized Loans (Explained)
Business, marketing, and blogging – these three words describe me the best. I am the founder of Burban Branding and Media, and a self-taught marketer with 10 years of experience. My passion lies in helping startups enhance their business through marketing, HR, leadership, and finance. I am on a mission to assist businesses in achieving their goals.