A personal loan is a type of loan that can be used for any purpose. There is no specific use for a lender to grant a borrower a personal loan. Personal loans are one of the most sought for loans as it allows the borrower the flexibility to divide and allocate the proceeds of the loan to any expenditures that borrower may have. This type of loan is an unsecured loan which in effect requires a high rate of interest to allow the lender to recover the principal amount within the fastest time possible.
If you are considering to get a personal loan, here are some advantages and disadvantages of having a personal loan.
- One advantage of a personal loan is for emergency spending that may be related to medical, household, or auto repair. A personal loan can address these emergencies if sufficient cash is not available.
- Personal loans can be used to purchase goods and services that are large in amount. It allows the buyer to pay for the purchase price of the goods or service on an installment basis.
- Personal loans are flexible in nature where the bank does not require specific use of the funds. This allows the borrower to use it for whatever purpose they may see fit for it.
- Because of its nature as unsecured loans, personal loans do not require any security. This in turn requires minimal documentation and quick approval and availability. This is the reason why personal loans are best for emergency funding.
- As mentioned above, personal loans are one of the types of loans that offer high interest rates due to its unsecured nature. They are high risk loans that lender provides their borrowers and in turn require high interest rates.
- If you are opting to borrow through a personal loan, one requirement is a good credit standing. Being a high risk type of loan, a good credit standing is one of the lenders basis in approving the requested loan. Having the need to check the credit score creates a variable interest rate applied depending on the borrowers credit score.