Exploring The Pros And Cons Of Personal Loans
Personal loans are probably the fastest and easily available loan product
. The reasons for obtaining a personal loan differ from person to person. Some people use loans only for emergent situations, while others use them to go on vacations or shopping sprees.
However compared with other loans such as home loan, property loan etc, it is more costly. From bank to bank interest rate will vary based on your personal profile. As the nature of your employment changes, the interest rate should vary from 12-24%. There for before taking a loan, you should ensure that you get the best deal for your profile.
There are two kinds of personal loans. Secured loans (needs guarantor or security) and unsecured loans (doesn't need guarantor or security).
As compared with other kinds of loans they have some limitations. In the same way, benefits are also there. Even if personal loans are almost the best option for your urgent cash need, but you must have to take care of the benefits and draw backs related to them before going for a personal loan.
Here we will discuss the advantages of personal loans. They are usually in easy repayment form. Lenders typically provide repayment period from 12-60 months for major financial institutions.
EMI is calculated by considering the amount taken along with the interest rate. Big loan amounts are sanctioned for secured personal loans due to the collateral submitted.
Based on the value of the security produced, a larger amount may be obtained. There are usually very flexible terms and conditions. This factor is also related to secure personal loans, that is getting flexibility in terms and conditions due to the involvement of security.
Used for satisfying various purposes of the borrower. The reasons for obtaining a personal loan are many. Unsecured kinds of personal loan don't need guarantor or security.
Thus person's they don't have enough collateral to submit are also getting personal loans. You are free to use the money however you see fit. There is no restriction from the loan provider on the usage of loan money, nor will there be lengthy discussions regarding your reasons for needing the money.
There is a high level of confidentiality when obtaining a personal loan. Lenders ensure adequate confidentiality between the borrower and the loan provider.
A lot of personal loans come at a very low cost to the borrower.
Secured personal loans are cheaper than unsecured one due to security. They are usually very easy to obtain. Loan provider must take the responsibility to provide good quality deals.
Refinancing options are offered by several lenders as well. Some can act as a debt consolidation factor. That is, it will help you to transfer all your debts to one easy to manage personal loan.
Now we will discuss the disadvantages of personal loans. It does not allow you to get a tax deduction, as the interest payments are not tax deductible.
Higher interest rates are associated with some types of personal loans.
Interest rates are high as compared with other loans. If your profile is weak, for example you are self employed, the interest rate may be 25%. Credit rating does come into play with most personal loans as most lenders insist on their borrowers having a good credit rating.
And they are difficult to sanction; these loans are relatively difficult to obtain as it need more documentation procedure. As compared with other loans, the qualifying criteria are stricter than for other loans.
Gaining knowledge in all areas of the loan details is a main factor. Before taking a personal loan the borrower should understand all the formalities and procedures regarding to the loan structure.
The interest rates, repayment period, collateral to be produced etc are noted to gain the full benefits of the personal loan. Try to analyze the different financial institutions they offer different terms and conditions, so as to choose a better loan package.
Keep one thing in mind, that missing payments, or paying late will cause you to fall further into debt.
by: Jack Landry
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