Personal Loans: Is it Good or Bad?

To meet the needs of the borrowers, the lenders in India now offer many different types of loans. From home loans, auto loans, to education loans, there is now a loan for every need.

However, while these loans are given for a specific purpose, is there a loan that does not require you to have a particular type of need such as buying a house, car, or education expenses? For instance, is there a loan to pay for a medical emergency, marriage function, or maybe a family vacation? A loan that borrowers can use any way they want?

Yes, a personal loan is a type of unsecured loan which does not require you to explain the reason why you are borrowing the loan. No matter what the financial emergency or expense is, you can take a personal loan to meet any of your requirements. However, while a personal loan offers many benefits, it is only a loan after all and should be borrowed with caution.

One should thoroughly understand the good and bad of a personal loan before making the decision. To help you decide, here are some of the most important pros and cons of a personal loan-

Pros

1. Multipurpose Loan

Needless to say, one of the biggest benefits of a personal loan is its flexibility of use. You can take them for a variety of reasons such as a medical emergency, managing travel expenses, purchasing the latest mobile phone, or even renovating or upgrading your home.

2. Minimal Documentation

If you have ever taken a loan such as a home loan or car loan in the past, you might already know how challenging the whole documentation process can be. The documentation requirements of a personal loan are minimal, and they are processed much faster too.

3. No Collateral Required

A personal loan does not require you to provide any collateral or security to the lender for borrowing the loan. This makes it an excellent option for someone who does not own assets such as home, car, shares, etc.

Cons

1. Higher Interest Rate

As the personal loan is an unsecured loan which does not require any collateral, their interest rate is considerably higher than most other types of loan. Lenders offset their risk by offering such loans at a higher interest rate.

However, if you have a financial emergency and need a loan for a short duration, a personal loan is still one of the best options.

2. Requires Good Credit Score

Your credit score helps lenders know how good or bad you are with credit. As lenders are offering personal loans without any security, they want to ascertain that you are indeed a creditworthy individual. As a result, they only provide such loans to people with a good credit history.

If you have repaid your past loans or credit card bills on time, getting a personal loan shouldn't be a problem for you.

Should You Take a Personal Loan?

The decision of whether or not you should take a personal loan depends on your circumstances. If you are in urgent need of money for short-term, a personal loan is definitely a great option.

Just make sure that you genuinely need money and can easily repay the loan on time. Select the loan amount and tenure very carefully to ensure that you can pay the monthly EMIs while still managing your other monthly expenses.

Hi I am Atish Nayar. I am working as freelancing agent.