How often do you think of personal investments such as renovations or new furniture? And how often do you give up on these thoughts because of unaffordable expenses? No one likes putting plans on hold due to financial restraints. The easiest solution for such issues is personal loans.
What Is A Personal Loan?
If you think a personal loan works as a credit card does, you are mistaken. A personal loan, in the simplest words, is an instalment type loan. In this type of loan, you borrow a decided amount of money from a lender, which is very often a bank. The amount that you borrow is due to be paid in fixed instalments, over a fixed period of time. Like most loans, a certain amount of interest has to be paid on loan taken.
Despite what people think, getting a personal loan isn’t hard at all. The personal loan application is a simple process that can be done online or by visiting your bank. In a few cases, the lender may ask you to offer collateral that may be seized if the loan isn’t paid off in time. But that is not always the case.
Should You Get A Personal Loan?
Just knowing what a personal loan is, isn’t enough to decide if you should apply for one. Chances are, you are still confused about the implications and outcomes of applying for such a loan. In order to help you decide, here are a few pros and cons of personal loan.
Pros Of Personal Loan
Get The Amount You Want
One of the best things about a personal loan is that you can apply for almost any amount you want. Banks and other lenders are willing to up to $100,000, given that you have a strong application. The strength of your application and, consequently, the amount of loan you get depends upon the use for the given loan, as well as your salary and other means of income. You more you earn, the bigger loan you will be eligible for.
For Any Use You Want
A number of other loans are meant only for specific uses. You can’t use your mortgage loan for buying a car, neither your student loan for your seasonal shopping spree. Unlike these loans, a personal loan can be used for almost anything. From investing in new appliances to renovating the house, you can use the loan in any way you want to.
Collaterals Are Not Always Required
Most of the other types of loans ask of you collateral. This collateral is kept with the lender for as long as the loan isn’t paid off. Failure to pay back the amount may result with the lender seizing the collateral. With personal loans, most lenders do not ask for collateral. This puts borrowers at a reduced risk of being scammed or losing their property.
Affordable Interest Rates
The interest rates on credit cards and other loan types are usually higher than that for personal loans. Since these loans do not come with a huge amount of interest, they can be easily paid off as well. Even individuals who do not have great financial stability find these loans to be better due to their affordable interest rates.
Ideal For Debt Consolidation
While different individuals get a personal loan for different reasons, a lot of people seek personal loans for the purpose of debt consolidation. According to a survey, about 26% of the people that take personal loans, do so for paying off their debts. Even though this does not free them from debt entirely, it allows them a lower monthly payment. This allows the individuals a great relief as the smaller amount is easier to pay off.
Quick Loan Approval
Most of the other loan types take a longer time for approval. They require you to fill a number of forms. Some may need a longer time for verification purposes. With a personal loan, a huge part of this lengthy process is cut short. You may hear back from the lender, with approval, as fast as in a day. At most, the approval of a personal loan may take a few days, and no more.
Same Payment Every Month
Unlike a number of other loans, the instalments of personal loans are fixed and the same throughout the period. Since the payments are fixed, you do not need to worry about doing the math and calculating the amount due every month. This saves you from a great number of hassles and mishaps.
Cons Of Personal Loan
On the one hand, where borrowers worry about not being able to pay off a loan, with a personal loan, they need to worry about the prepayment penalty as well. A prepayment penalty is an amount of additional money that borrowers need to pay if they pay off their personal loan before the loan term is over.
A personal loan comes with not only the interest that has to be paid off but also an origination fee. This is the amount that is needed to process the loan. It can range anywhere from 1 to 6 percent of the loan. This amount is either added to your loan or deducted from the loan that is given to you.
A great amount of personal loan is taken from lenders that are not associated with banks or other organizations. This makes sufficient rooms for scammers to trap and get money out of borrowers. It is, therefore, necessary to ensure that the loan is taken only from an accredited source.
Fixed Payment And Loan Terms
While this may be an advantage for some, the same can’t be said for everyone. There are people who are used to paying off a small amount of their credit card debt every month. Having to pay a fixed sum over a fixed period of time may not be as easy for such individuals.
Vicious Debt Cycles
If you pay off one loan, by taking another loan, you will still be under the same amount of debt. A number of lenders may entice you with smaller monthly installments and better loan rates. But this only results in individual entering vicious debt cycles that move them from under one lender to another, without any actual paying off of debt.
A personal loan is meant to help individuals in times of personal financial needs. Be it for large purchases or for refinancing pre-existing debts, and a personal loan can meet all the needs of an individual with a strong application. On the one hand, where there are a number of advantages of personal loans, the other hand isn’t empty of its disadvantages. But with a careful evaluation of the lender and calculated and regular payments, a personal loan maybe your best option for financial aid.