What is a personal loan?
Personal loans, indicative of its name are when financial institutions issue funds to applicants with the benefit of repaying the loan amount in monthly installments. Moreover, such personal loans are not issued against any valuable asset, such as your household. Due to such a distinct feature, personal loans can also be called, unsecured loans.
What are the pros of such loans?
Availing personal loans does provide its fair share of benefits. For example:-
- Instead of seeking credit amounts from a credit card, availing a personal loan lets the individual withdraw significant credit amounts from financial institutions, much more than what he or she can get from credit cards.
- Since such loans predetermine the condition of repaying the loan amount in monthly installments, the EMIs or equated monthly installments tend to be much more budget friendly.
- The interest rate on said personal loans is typically predetermined; however, interest rates do vary from one institution to another.
- Another benefit of availing a personal loan is the applicant is free to decide the amount of time he or she would require to repay the dispersed loan amount. But a crucial aspect to bear in mind when determining the length of time taken to repay the amount is that the more time is received, the more likely you will be charged with a significant interest rate.
- Loan applicants are provided with the freedom to ultimately pay off their entire dispersed loan amount at any time without being eligible to any penalty charges and fines.
Adding to the previous point, if the individual pays a significant amount, more than 8000 pounds in a time period of 12 months, the lender is eligible and most likely to charge compensation expenses.
What are the cons of such personal loans?
- Legitimate financial institutions tend to charge a higher rate of interest as compared to other types of borrowing. This can be quite an obstacle especially when you desire to borrow a minor amount.
- Since the interest rates can fluctuate, often in the benefit of the applicant, the loan applicant may tend to withdraw or avail more substantial credit earnings than he or she actually requires. This can increase their chances of availing excessive debt.
- Since a majority of financial institutions in the United Kingdom don’t lend an amount less than 1000 pounds accompanied by repayment periods less than 12months, the borrowers are most likely to avail credit amounts much more than they can afford.