Are you facing a shortage of cash for unexpected expenditures? Do you have medical bills to pay? Home renovation plans? Urgent and unavoidable travel requirements? Or a wedding coming up?
COVID-19 has impacted our economy and life alike, and hence a lot of us are under a financial strain. If you are among the few who don’t have any savings or do not want to disrupt your investments or loans, a personal loan might be your best solution.
Advantages of a personal loan
Unlike most of the other loans, a personal loan does not require you to provide a reason or justify the end-use of your borrowed amount. You may decide to use the loan amount as per your requirement and preference.
Ease of Documentation
There is minimal documentation required for availing a personal loan. KYC documents such as Aadhaar Card, PAN Card, Driving License, and income-related documents such as – salary slips, bank statements, tax returns, form 16 are the only requirements.
The tough competition among financial institutions in the market to increase their business ensures that personal loans are available for borrowers at very competitive interest rates. Hence, you can scourge the market and grab the best deals.
Disadvantages of availing a Personal Loan
If you are a spendthrift, personal loans might not be the ideal option for you. Borrowing a loan to settle off other debt will lead you to a dangerous debt cycle. Ensure that you settle your credit card bills and avail of a personal loan only in case of emergencies.
The interest on personal loans tends to be higher than other specific loan types such as home loans, vehicle loans, etc. The reason for this is that a personal loan comes under a high-risk category as the end use of the funds cannot be tracked by the lender. Hence, you should evaluate the kind of expenditure you require the loan for and apply accordingly.
Additional charges on personal loans tend to make it an expensive deal. Fees such as processing charges, delay payment fees, etc should be thoroughly discussed with your lender before you opt for a personal loan. Further, a personal loan makes it difficult for you to settle the liability before time as they levy a prepayment charge. Hence, you must choose your tenor and EMI amount carefully.
In conclusion, the increasing competition and the growth in the personal loan segment have invited many financial institutions such as banks and NBFCs, to offer this product. Hence, it is relatively easy to avail of a personal loan in the present times. Further, you can even apply via the online mode from the comfort of your homes. However, as attractive as they sound, you must apply for a personal loan only in case of urgent, unprecedented, and unexpected expenditure.