A personal loan is a type of loan which can be used for versatile reasons. The other types of loan such as home loan or car loan, can only be used for particular purposes. Personal doesn’t have a fixed area as such.
Personal loans can be a useful option if used wisely. In scenarios where you are running behind your payments and have no other options to manage it, a personal loan can help you in bringing your life back on track. However, it can be dangerous if you do not put a lot of thought into it.
Personal loans are provided by banks as well as private money lenders such as personal loan in toa payoh. But before you make up your mind, here are some pros and cons of personal loans.
Unlike other types of loan, personal loan can be used for any purposes unless there are restrictions in place. In most cases, personal loans are meant for personal requirements.
2. High Borrowing Limits
Personal loans have high borrowing limits. They are similar to credit cards. With high limits, the interest rates get lower. But there is a catch (look at the cons section).
3. No Collateral
Personal loans do not require collateral. This means that you do not have to put your car or your home on the line as a guarantee of repayment. However, if you fail to repay the borrowed sum, the consequences may be severe.
1. High Interest Rates
Personal loans have high interest rates. If you borrow a large sum under a personal loan, the interest rates are lower but they are low in a sense. They are still high. With a large sum, you pay large interest. Even if the rate might seem low on the graph.
2. High Penalties
If you fail to meet the repayments, the penalties are high on personal loans. Go for personal loans only if you are sure you can meet the repayments.
3. Increase Debt
Personal loans can increase your debt if not used wisely. Personal loans might seem delicious at first but it can turn disastrous if not planned carefully. Personal loans have made people fall into debt and in turn ruin lives.
The prose of personal loans include that they are versatile and flexible. They have high borrowing limits and require no collateral. The cons are that they have high interest rates, high penalties and they increase debt if not managed smartly.