To meet a sudden cash crunch or fulfil a financial aspiration, a personal loan can be of great help. Banks and NBFCs offer personal loans and applying for a loan has become easier thanks to online processing. Hence, personal loans are seeing a resurgence in popularity.
However, it is a good idea to see both sides of the coin. Here is a detailed list of the pros and cons of personal loans.
Pros of Personal Loans
Personal loans can be a savior during a financial crisis. Apart from that, there are several benefits to availing a personal loan. Here are some significant advantages of this financial product.
- Multiple uses of a personal loan: This loan can finance your dreams and aspirations that may have stalled due to lack of funds. In a personal loan online, you can use the money for various purposes provided they are genuine and legitimate. You can use your personal loan to spend for your wedding or for higher studies, renovating a house and even paying off other debts.
- Shorter TAT: The Turnaround Time (TAT) to approve and disburse a personal loan can take just a couple of days. This can help borrowers who need money urgently for immediate use. Non-banking financial companies process a personal loan application within 24 hours. With online application and document processing, the time taken to review a loan application has shortened considerably.
- Loan amount as per requirement: There is no fixed amount for a personal loan. You can avail any amount of funds provided your earnings/income support the monthly instalments for that borrowed amount. The lender generally assesses your financial abilities and accordingly disburses the loan amount after approval. The amount of loan may vary from one lender to another because of the personal loan eligibility criteria. Most financial institutions offer a personal loan up to Rs. 25 lakh.
- No collateral security: To avail a personal loan, you do not need to provide any collateral. There is no need for a guarantor as well. Since these loans are unsecured, the lender cannot sell your properties if you cannot repay the loan. You can avail low-interest rates personal loan with an excellent CIBIL score.
- Easy application process: With an online platform, you can easily find out how to apply for a personal loan. Simply complete a few steps that involve filling the loan application form and submitting it with the required documents. The documents can be scanned and uploaded without the need of sending them via regular postal delivery services. You can easily apply for a personal loan by completing the process online.
- Customised EMI and tenor: Some NBFCs such as Bajaj Finserv allow you to fix the tenor of your personal loan. You can choose a specific tenor to repay the loan. You can also avail great discounts on your personal loan interest rates if you have a high credit score, which can reduce your EMI. If you can choose a longer tenor, it could reduce your overall loan burden.
Cons of a Personal Loan
Like most things, a personal loan also has its drawbacks. However, the cons are limited in comparison to its benefits. Here are a few points you may want to consider.
- Processing fees: Every loan carries a certain amount of processing fees. On secured loans, the fee is generally lower, but for collateral-free personal loans, the cost could be high. However, during the time of need, this fee may be inconsequential.
- Interest rates: Since personal loans are not backed by a mortgage, a lender could charge interest rates on personal loan, higher than secured loans. However, if compared to secured loans interest rates, the difference could be barely 2%-3%.
- Strict eligibility criteria: Since the loans are collateral-free, a lender could be at risk of not recovering the fund if the borrower defaults. This is why lenders set specific eligibility criteria to approve the loans. This is to ensure that a borrower has the financial capability to repay the loan on time.
At NBFCs, you can avail hassle-free personal loans once you meet the required eligibility criteria. You can also get pre-approved offers which makes the process of availing a loan much easier. Simply provide your basic details and check out your pre-approved offer on a personal loan.