Know the Benefits and drawbacks of taking a personal loan
Can a personal loan be your best ally in need of credit? The answer varies on your condition and many factors. A personal loan has become one of the most famous credit options among borrowers, but still, it has pros and cons. Knowing the benefits and drawbacks of taking a personal loan is important, even if you are planning to take a small 1 lakh personal loan from any lender in the country, like PNB Personal loan. Here, we will discuss the benefits and drawbacks of taking a personal loan. They could help you to make a rational decision if you want to secure a personal loan in the near future.
Benefits: There are many pros of personal loans, which make them a popular credit product. Some of them are given below.
Multipurpose: Personal loans have not confined to use for any particular purpose like the other credit options. One can take a personal loan to serve any kind of purpose except gambling. Even the amount of the loan and lender don’t define the purpose, as you could even take a 1 lakh personal loan from PNB personal loan and use it for vacation, shopping, wedding, children’s fees, etc. You don’t have to worry about proving the purpose to the lender before taking a loan. One can call it the most flexible credit option.
Quick disbursal: Personal loan has one of the fastest credit options one can have after applying for the loan. With the rising technology, some lenders even claim to disburse the loan amount after some hours of applying for the personal loan. You can count it as the best option if you are in urgent need of cash and you need a 1 lakh personal loan. Simple documentation for a personal loan also plays a major part to make it a quick credit option. Most lenders try to keep it minimal when it comes to documentation for a personal loan; you just need to provide basic identity, address, and income proof with the loan application. Rising of digital lending has made it more convenient. PNB personal loan is also available online. You can upload all your documents online and get a loan approved after the verification is done and then the loan amount in your account.
Collateral-free: The quality of a personal loan that makes it unique and accessible for borrowers is its collateral-free nature. Collateral has been big trouble for people who need financial assistance but have nothing to pledge as a mortgage. A personal loan has been revolutionary in this regard. From a small amount of 1 lakh personal loan to the maximum limit, you don’t have to provide any collateral to get a personal loan. Eligible individuals can have the money without worrying about security in exchange for it. From big banks like PNB personal loans to NBFCs, all are providing the personal loan without taking any guaranty from borrowers.
Drawbacks: Despite having attractions, personal loans do have drawbacks that could affect borrowers. Some of the major are below:
High-interest rate: Personal loan interest rate is the highest in the lending market among all credit options except credit cards. Personal loan interest rates go up to 30%. The reason behind this cost is the unsecured nature of the personal loan and the heavy risk for the lender due to it. In order to counterbalance risk, personal loans carry very high-interest charges. PNB personal loan interest rates can go up to 14.50% if you take a 1 lakh personal loan for a short tenure. High-interest rates can make the repayment tough for a borrower after taking the loan. Hence, it’s not an attractive option for those who are looking for a cheaper credit option.
Fees and charges: In addition to the interest rates, most of the banks and NBFC levy high charges on the personal loan to cover the application processing. These are typically higher than the charged for secured credit options. The sum of these charges could be a certain percentage of the loan amount, which gradually makes your loan amount lower than you requested and need. Processing fees for the PNB personal loan is 1% of the loan amount. Other than these, lenders also charge prepayment fees for a personal loan. Prepayment is one of the best options to pay your loan fast and save interest costs, but lenders make the borrower efforts toothless by charging the prepayment fees. Hence, keep an eye on charges and fees when shopping for a personal loan, as they can increase the borrowing cost.
Strict eligibility criteria: the eligibility criteria for a personal loan are very tough; even a major percentage of loan applications get eliminated in the first step of evaluation by the lender. Lenders take a conservative approach while evaluating a personal loan application. One should have a good credit score, the salary of an applicant is also a factor, and even the locality applicant in living could become a reason for personal loan application rejection. The collateral-free nature of this credit option made lenders so prudent for even a small 1 lakh personal loan. Even a small factor can make this loan inaccessible for an applicant who has a pressing need for cash.
Should you go for a personal loan? The answer depends on the situation you are in, even if you want to take a personal loan from a big lender like PNB personal loan. If you are in dire need of credit and don’t have any collateral to pledge against a secured loan, then a personal loan is most advisable. This is because even if you have a credit card and you go for cash withdrawal, it is far more expensive than taking a personal loan. But if you own assets like property, gold, or other market assets, it is wise to take a loan against these assets since these loans have lower interest rates. Take everything into account before making a last decision, as analysis of your circumstances and comparison between credit options can help you to save a sufficient amount of money.
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