Despite the popular notion that financial debt can never lead to anything good, it is important to understand that this is a flawed concept. Financially responsible individuals use loans to manage their expenses better, and all successful businesses practically run on loans and credit. A personal loan is one such loan that has several advantages, provided it is utilized in the right way. A personal loan is a form of unsecured loan which can be used for any purpose as suited by the borrower. The best example of a personal loan is the money you spend using a credit card. Banks and other financial institutions usually offer such loans at a higher rate than secured loans, but come with other critical benefits. Here’s a look at some of the advantages of a personal loan:
- Smaller Loan Amount
Most banks and financial companies do not entertain loan applications for smaller amounts. That leaves out a large number of people from the official credit ecosystem as they usually require smaller loans. However, just like a credit card, you can avail smaller personal loan amounts as well, depending on your need. Several companies offering personal loans, like PaySense, offer loans starting from just a few thousand rupees. What’s more, personal loans are also offered to individuals who have never borrowed before and do not have an official credit score or history.
- Fixed Rate of Interest
When you take other forms of secured loans, there is the possibility of the rate of interest changing according to the current market trends. In turn, this impacts the EMI amount and deprives the borrower with a sense of stability in managing their finances. With personal loans, however, you need not worry about fluctuating EMI amounts. Generally, personal loans are available at a fixed rate of interest. This way, the instalments which have to be paid every month also remain the same throughout your loan tenure, which aids better financial planning.
- No Collateral Needed
Most banks that offer secured loans require borrowers to submit collateral, securities or some form of asset in order to qualify for the loan. However, since personal loans are a form of unsecured loans, borrowers do not have to submit any collateral. While the consequences of not paying the EMIs on time and defaulting on an unsecured personal loan are severe, they do not involve you losing a valuable asset. This is primarily the reason why the interest rates for personal loans are higher, as the lender is taking a higher risk while offering a loan without any collateral.
- Quick Disbursal
The process of applying for a loan is notorious for being long, cumbersome and bureaucratic. Most banks require lengthy documentation and undertake a stringent verification process. This may be true for the secured loans, but that isn’t the case with personal loans. If you qualify for the loan as per the given eligibility criteria, you generally obtain approvals and disbursals quickly. Many new-age lenders, like PaySense, also offer instant personal loans that grant immediate approvals and ensure a speedy disbursal of the loan amount with minimal documentation.
- Flexible Loan Tenure
The loan tenure of a personal loan can be as short or long as the borrower wants it to be. Most lenders offering personal loans offer a choice of the loan tenure, which suits the borrower’s financial planning. This means that you can take short-term loans for just a few months and also apply for longer loans that can be repaid over a few years. This increases the flexibility you have and helps you balance the EMI amount with the loan tenure appropriately. Make sure that the EMI amount doesn’t exceed more than 40-50% of your total monthly income.
These are some of the top benefits of a personal loan, but there are several other advantages as well. At the end of the day, you must choose the loan amount carefully, select the most suitable
EMI plan, and balance the loan tenure with the EMI amount so as to make the best financial decision. If used cautiously and with discipline, personal loans are one of the most dynamic and useful credit tools available in the market today. Make sure you read the terms and conditions of the loan agreement carefully before taking any loan.