Personal loans are certainly a prudent financial option when you are in serious need of cash and don’t have any asset to draw cash against except a credit card. Securing them turns out to be a much more feasible alternative in this case, as withdrawal of cash against a credit card is a considerably expensive proposition. They can be taken out for a number purposes including home enhancement, meeting traveling expenses, paying hospital or medical bills etc. If you are someone looking for their aid, you should be well-informed about their basic features:
- They can be availed without lengthy documentation processes but the rate of interest would be a little high as against secured loans as lenders are a bit apprehensive about the lack of security here (i.e., they can’t really confiscate any property if the debt goes unpaid).
- You are required to pay the debt off within the fixed repayment period. A longer repayment period might appear more attractive as you get more time to pay off the debt but you actually would be paying more interest in the long run.
- The rate of interest is generally locked and doesn’t change for the entire tenure.
- The potential borrower is required to have good credit ratings in order to qualify. With no collateral involved, lenders are hardly interested in entertaining requests of borrowers who have not been able to pay off their earlier debts on time. So most of the times the borrowers’ applications stand rejected. Even if the lender consents to provide this type of financial aid to borrowers having poor credit, the principal remains low. Your credit rating will primarily govern the loan amount you would qualify for, besides the rate of interest. Higher credit scores would mean lower rate of interest.
- They can be availed as fast as within 24 hours and involve simple documentation process.
Should You Opt for Them?
The personal loans can be treated as traditional loans with fairly modest rates of interest that can be repaid over a period of time. You should consider availing them only when you have no collateral to offer, otherwise not. It’s only advisable for you to opt for secured loans, if possible, as they are generally cheaper than the personal ones. Please take in to account your present mortgage bills, other loans, your earnings and other liabilities while taking the aid of personal loans. It is important to honor your commitment (as far as repayment of the debt is concerned).
You won’t have your asset seized in case of failure of repayment but will obviously stand the chance of hurting your credit scores. The prospect of availing quick loans might seem very attractive initially, but you need to do a lot of thinking before availing it. The urgency of the situation, your repayment capacity, the terms and conditions spelled out by the lender, should all be considered thoroughly. It can safely be claimed that you as a borrower can best estimate your capacity to repay.
But if you are opting for long-term debt, make sure that you’re keeping the uncertainties in view as well. For instance, if you have opted for a 48 month (i.e. 4 years) loan term, do consider chances of possible economic slump or a job loss. It’s important to estimate your capacity to pay off your debt in the face of these possible adversities as well.
Author Bio: Sam Payn’s keen understanding of World Economy has made him one of the most well-known financial writers in the web world.