Whether that need is due to an unexpected misfortune, or the desire to make improvements to your life and that of your family; the financial assistance solution most often chosen, is a personal loan.
What Are Personal Loans?
Personal Loans are cash loans of varying amounts made to an individual by a financial institution. These loans are repaid over a specified number of months at an interest rate that may or may not be fixed. Personal Loans are typically straightforward to apply for and obtain, provided that the requirements of the chosen financial institution are met.
Before securing for a personal loan, it is a good idea to familiarize yourself with the pros and cons of the loan process to make an informed decision.
The Pros
Personal Loans are often tailored to suit your financial situation. They are typically repaid in fixed amounts, making them easy to budget.
Unlike other loan types, personal loans are multipurpose and can be used wherever necessary. Family holidays, medical bills, vehicle repairs, home improvements and school fees are all examples of expenses that can be covered by a personal loan.
Regarding paying off the loan, you decide on the repayment period. Bear in mind, however, that the length of the loan determines the amount of interest you will ultimately pay. The more extended the loan period, the longer you will stay in debt and the higher the total repayments will be.
A personal loan application is quick to complete and process because it requires less documentation than that of a home loan or a vehicle finance application, for example.
Another benefit of a Personal Loan is that no collateral is required, so you can borrow money from the financial institution without risking your assets to do so.
The Cons
Depending on your credit history, it may be difficult to obtain a personal loan. This is because financial systems are wary of taking on risky applicants who have previously defaulted on payments or have had judgments against them.
While personal loans are more accessible to attain than a home loan or vehicle finance, you will find that the interest rate is significantly higher. The length and amount of the loan, as well as your credit history, will determine the interest rate offered by the financial institution.
During the loan period, you could potentially incur additional debt if you are not careful with your spending, primarily on your credit card and any other accounts. Should you fall behind on your various payments, this will negatively impact your credit rating and could land you in severe financial trouble.
The Verdict
While there is, without doubt, the benefits of a Personal Loan in times of need, it is vitally important that you assess your financial situation carefully before you decide on a loan. Be sure to know the terms and conditions beforehand and always remain disciplined with your expenses.
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