It is very important to understand the idea of a personal loan before delving into doubts about it. A personal loan could be described as a loan that is handed to people on the basis of their income and credit ratings, for the purpose of settling emergency cases.
Personal loans are normally unsecured because the selling institutions do not ask for collaterals as a mandatory condition for offering the loan.
However, people with tangible assets can use them as collaterals to apply for secured personal loans.
One of the biggest reasons why a personal loan may be the best for you at any given time is because it is not given for any specific purpose. When people take car loans, they must buy cars with the given money and present evidence of the purchase.
In some cases, the lender gets involved in the purchase. When you receive a mortgage loan, you cannot use it for any other purpose except for the stated purpose, and you must present evidence to this effect.
But when personal loans are given, the particular reason for the loan may not be important. So, they serve several purposes for the receiver.
The fact that the majority of the lenders will not demand any collateral in case if you have a very good credit history and a workable repayment plan is another amazing thing about it. It makes it easier to receive a loan and use it to solve individual life problems.
When applying for personal loans, you also need to mind the fact that you can borrow almost any amount you deem fit.
In most cases, the amount of money given as personal loans range between $1000 and $100,000. It covers different needs, irrespective of the size, and therefore is a very versatile type of loan.
Also, in some cases, the loans are given at very good rates. This will depend on both the lender and the borrower. It is one loan where, though the credit score is very important, a bad score may not deny you the loan.
However, if the credit history is bad, the loan will come with increased interest rates.
Against some other loans like the payday loan that will give you only a few weeks to repay, this type of loan stands tall. That is because you will have more time to repay this type of loan.
5 Doubts about Personal Loans
Though a personal loan is a good option for people, who are in a financial quagmire, there are still many doubts or perceived downsides of personal loans, and we are going to discuss the most prominent five below.
Aren’t the Rates Too High?
Many people take personal loans due to emergencies and financial pressure, and when this is the case, they may fail to look at the real cost of these loans.
If you are coming for this with a credit rating that could be described as good, you may get pretty good conditions. However, if you have a ‘not too good credit’ score, then conditions of your loan might be less pleasant, so partially this doubt has a reason.
Though, after making some calculations, many people decide to go for it anyway as a personal loan is easy to get and it can be quite helpful in dealing with financial emergencies.
So, if you need it, just do some calculations and make sure that you’ll be able to repay it.
Isn’t The Process of Receiving a Loan too Tough and What Is The Real Cost Of It?
Because of numerous checks of your income and credit, the process of getting a loan may become cumbersome. So, it is the truth that you will need to make some efforts. Nevertheless, if you really need money, the result worth the effort. Additionally, the cost of each personal loan is much more than that.
The majority of the loans will come with something called the origination fee, and this is tied to the cost of processing the loan. In most cases, you will be paying up to 5% of the loan amount as the origination fee.
This comes as an upfront payment before the loan is given to you, and many people in urgent need of personal loans may not have this money to put down.
The way to get rid of this doubt is the same as in the case with the first one: you just need to learn terms and conditions and calculate everything before applying for a loan.
How Much Of a Cure Is It?
In most cases, people use personal loans to manage other debts. For example, it can be used to cover the mortgage payment and avoid penalties for the late payments. However, borrowers usually ask themselves: how much of a cure is it? This is reasonable doubt because a personal loan itself doesn’t solve any problems. Taking care of a debt issue by getting into another debt makes the loan a tool, not a cure. When one debt is managed, another one takes its place. So, once again, be sure to calculate everything carefully and correctly.
Is My Reason for Taking a Personal Loan a Good One?
Do personal loans augur well for every possible reason? The answer is no. Lending with a purpose to invest in the stock market, or to stake on games, or to do anything with an uncertain outcome is a bad idea.
To get a gold watch, buy a diamond engagement ring, or throw an expensive party by the beach, are not good reasons to go for borrowing money as well. However, if you need money urgently and sure that you will be able to repay the debt on time, a personal loan is a life preserver.
What If I Face Prepayment Penalties?
This is another reason that makes you doubt the usefulness of the personal loan. Well, there are two things that should help you in dealing with this fear. Just like it was with all previous doubts, you need to be sure that you are aware of all credit terms and calculate if you will be able to repay the loan. If you feel like you will miss the payday, just do not apply for a loan.
Conclusion: as it was stated in the article numerous times, many things should be considered before applying for this loan. If you feel that in your case a personal loan is not a tool for resolving a problem, but a reason for getting into more problems, just do not go for it.