Before we delve into the pros and cons of this personal loan’s facility, it would be sublime to consider the rudiments of this system that allows people to access cash lending without much ado. In essence, this stands as the source through which individuals can get hold of money to settle emergency financial burdens at any given time.
For instance, the Brown family in New York was planning on remodeling their Ribs Shop. The reason behind this is to help them attract more customers, and they were thinking of making use of a credit card loan for this. However, when they talked to the contractor they intended to hire for the task, they discovered that the entire exercise would cost much more than they expected. With an estimate of about $20,000 for the singular remodeling project, they would be looking at a repayment plan of $500 per month. This will mean that the loan will take them up to 6 years to repay, and the interest at the end will be about $7000.
When they were advised to consider applying for the personal loan, they came to the understanding that their good credit rating will give them good conditions of such a loan. Most possibly, they will repay it within 5 years at a 7% interest rate. This will end up at about $400 per month. This means that they will gain more from this option, and so, they chose it.
Meanwhile, there are two types of personal loan: secured and unsecured one.
The secured type is the one which is offered on the basis of an asset provided by the borrower as the security means for the loan. The collateral covers the risks they bear by giving out the funds.
The unsecured option covers the type that is given by the lenders without any collateral or asset. This is given according to the borrower’s credit score, and because of that, it comes with a higher rate as coverage for the increased risks. In most cases, the terms are a bit more rigid. However, some upsides and downsides of this type of loan must be studied by prospective borrowers before they go for such loans.
The Pros of Personal Loans
- The flexibility is something that places personal loans above many alternatives. Here, there is always a possibility of using the strongest and most compelling reasons to apply. But in the real sense, you can solve whatever needs you consider fit when the funds arrive. A student can get this for the purpose of feeding, accommodation, books, and general upkeep, and eventually use it to set up a small scale business, and there will be no need to explain what the money was used for. But, some other loans that are given for specific reasons may involve some level of monitoring by the lenders, to ensure full compliance.
- A personal loan may come without collateral. Many people are in need of funds for pressing needs, and can comfortably pay back if they can access this. But because there are no assets to use as collateral, they can’t get such loans. This whole problem is solved by an option to apply for a personal loan. Here, the much-needed funds can be gotten by those in need, even when they have no assets.
- For a person with a bad credit score, the possibility to get some funding is always good. It is a straightforward process and a massive boost from the cumbersome process involved in getting money from other sources, though the interest may become higher. There is also the possibility of some lender’s offerings even if your score is bad. This is a double gain.
- This is the best method for consolidation. So, people who are about to default on earlier loans can easily use this to settle such. But before this, they should check properly, so as to ensure that they are not getting increased rates than what they have on the present facility.
- The fact that you can get a small amount of money of $1000 or a huge of $100,000 is the reason why a personal loan is good for solving many problems. The truth is that no credit card firm will offer you anything close to this. So, it goes to say that with this type of funding, any kind of problem that comes your way can be solved.
- Many people will see any rates given on this as a saving circle. But possibly people with a nice credit score will discover that a credit card loan might be more beneficial for them. Meanwhile, in fact, your credit score isn’t poor, you can get a personal loan with very good conditions.
- Another amazing advantage of this type of arrangement is that in most cases you will get a very long time to repay it. At the same time, many payday loans will come with a term of a few weeks, putting the borrowers under pressure.
Cons of Personal Loans
- All personal loans come with fixed payment terms. Though this may be longer than what payday loans offer, they cannot offer the level of freedom gotten when you use your card. Some card firms offer open repayment terms.
- The origination cost is another downside of personal loans. Here, many lenders will demand a fee of about 5% of the entire cost of the facility for this. This, for them, takes care of the processing, and it must be cleared one-off at the beginning.
- Pre-payment penalties are also involved here. Because the payment term is fixed, borrowers must follow it. So, any attempt to clear the entire debt at once prior to the expiration of the term attracts a pre-payment penalty. At the same time, the card facilities will accept full repayment anytime and save you the interests you would have paid if it lingered.
- People with a credit history that cannot be described as good, will definitely encounter higher rates here if they do not possess an asset.
Conclusion: In many cases, personal loan happens to be the most convenient way to access money and sort urgent needs. However, there are some downsides that should be taken into consideration before you make a decision about whether you want to apply for a loan. You should consider the total costs of each type of loan at any given time before you leave your signature on the paper.