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It is always a good idea to know various advantages and disadvantages of personal loans.

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Personal Loan - Advantages &Disadvantages

Personal Loan is a type of unsecured loan that is given to a consumer to cater to any of their personal needs like buying a vehicle, home appliances, marriage or for renovation etc. It is given after verifying your ability to pay, particularly the source of income and also as per your credit history.
Some processing fee is charged and the amount according to your paying ability gets credited to your account. The payment of the loan is made through fixed installments including interest for a fixed period of time. Personal loans come handy these days. You do not have to go through tedious paper work and loads of formalities. Majority of banks and financial institutions provide personal loans. The interest rates are also quite reasonable and people often take a personal loan for purchasing purpose.
Advantages of Personal Loans – 
  1. Easily Available – Getting a personal loan is not a tough task. Personal loans are offered at reasonable interest rates by almost all banks and financial institutions. It is easy and convenient to get these loans in comparison to other types of loans..
  1. No Agent or Middleman Involved – In order to get a personal loan you do not have to approach a middle man or an agent. This avoids unnecessary delays and expenses. You can directly approach the bank or financial institution for the purpose. 
  1. Unsecured Loan – As stated earlier, personal loan is an unsecured loan. There is no collateral security required in order to get this loan. All that is required is your ability to pay back the money. You are not required to mortgage any of your assets or provide for any kind of guarantee. One the lending institution become sure of your re-payment ability, they process the loan. 
  1. Less Processing Time – As personal loans are available without any security or guarantee the processing time involved in getting it is also very less.  
  1. All Purpose Loan – Personal loan is such where it is not mandatory for you to specify the cause for which you are to use the money. You can use the amount credited in your name for any purpose. It is at your discretion to decide what you have to do with the money. 
  1. Minimum Paperwork – Getting a personal loan does not require verification of any asset or any other kind of proofs and certificates that involve a lot of paperwork as none of your property is mortgaged. 
  1. Schemes and Offers – Number of banks and financial institutions keep announcing special schemes and offers of personal loans for professionals like Chartered Accountants, Doctors and Architects etc. 
  1. Amount and Tenure – Personal loans are offered ranging from Rs15K to Rs 20 lakhs varying from bank to bank. The repayment can be made through EMIs which is an option available. Loans tenure may depend upon the amount borrowed and may be from 12 months to 60 months. It is always advisable to opt for a personal loan instead of going in for borrowing cash from credit card as the interest rate is comparatively low for the first one. 
Disadvantages of Personal Loans – 
  1. Qualification Criteria - You need to qualify for a personal loan as per the guidelines of the bank and once you do that there is no delay. The guidelines vary from one bank to the other and the lenders do observe strict guidelines in this case as there is no collateral security. 
  1. Credit History – It is mandatory for you to have a good credit history when you apply for a personal loan or else your application may get rejected. No lender would want a bad debt for the amount he lends. So prior to applying for your personal loan make sure you have a good credit history without any default in payments. It is advisable to apply for a personal loan with the bank in which you have an account or with which you share good rapport. Applying for a personal loan with a new bank or financial institution may result in more paperwork as they may call for detailed documentation and references for verification. 
  1. Bank Account – It is mandatory for you to have a bank account if you wish to avail a personal loan. Not necessarily with the bank you are applying for. 
  1. Lender’s Risk – As it is an unsecured loan, the risk is quite high for the lender because there is no collateral security or guarantee with them. If the borrower defaults payments then recovery of these loans prove to be very expensive and tedious. 
If you are the one who owns a good credit history and have means to repay the amount borrowed with interest then you can easily get a personal loan for any purpose you require. If you do a bit of research you may be able to strike the best deal in terms of interest rates while you apply for your personal loan.

  • Kush:
    I have a bad debt history as I was using HDFC credit card and I made a settlement with them in the year of 2012. I don't remember the exact outstanding amount I made a settlement with the amount of 15K. Now I work in Dubai and my salary range is much better than what I used to get before. Do you still think that banks like SBI can provide me Personal loan?
    08-Nov-2016 03:28 PM