Taking a personal loan can be very tempting especially when you have unplanned expenses. Applying for a personal loan is often easy, but that does not mean that you should just jump into it without knowing the pros and cons of having one.
Learning the benefits and disadvantages of getting a personal loan may help you greatly in making decisions for your application. Continue reading to learn more about the pros and cons of a personal loan!
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Benefits of a Personal Loan
- Debt Consolidation – A personal loan can help you financially by assisting you in paying off several debts so that you only have to worry about one. Debt consolidation may also help you save some funds by helping you avoid several interest charges.
- Instant Financial Assistance – When you have expenses that require immediate attention, a personal loan may be your knight in shining armor. Most are set to be quick and easy, especially when you have a great credit history.
- Multi-Purpose – Unlike other loan types that have specific purposes, a personal loan is more open to other personal expenses. When you need funds for your wedding, vacation trip, medical bill, etc., then a personal loan may be able to assist you.
- Lower and Fixed Rates Compared to Credit Cards – If you do some research, you’ll learn that personal loans tend to come with lower interest rates when compared to credit cards. Personal loan repayments are usually of the same value every month because of fixed interest rates.
- Abundance in Options – Personal loans are very common. Because of this, lots of lenders offer this type of loan. This means that you can shop through all these offers and find the best deal for you.
- A Chance for Everyone – Collaterals are not usually required to apply for a personal loan. So, people that are low in collateral may still apply for this type of loan. While most lenders require a good credit record, many lenders are still willing to offer personal loans to people with low credit scores.
Disadvantages of a Personal Loan
- Possibility of a Higher Interest Rate – Despite having a lower interest rate in comparison to credit cards, a personal loan can have higher interest rates than other loan types. Higher interest rates are usually given to those with low credit scores.
- Penalties and Fees – Personal loans may come with extra charges. Penalties may be charged to you when there are irregularities in your payment term. Personal loans also usually come with an “origination fee” or processing fee.
- Risks in Neglecting Payments – Neglecting your loan repayments may cause a big problem for you. If you chose to take a secured personal loan, then the lender may confiscate your collateral. On the other hand, if you chose to have an unsecured personal loan, the lender may sue you because you failed to pay your debt.
Personal loans do have lots of benefits that make it enticing to people. However, like everything else in this world, they are not perfect. If you think that the benefits of a personal loan outweigh the disadvantages of it, then go for it! Be sure to be cautious and choose the offer that’s best for you!
Also check out this debt consolidation plan calculator.