Author Topic: Pros and Cons of Personal Loans  (Read 38 times)

Sophie Bond

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Pros and Cons of Personal Loans
« on: October 10, 2018, 08:16:05 AM »
Understanding the Fundamentals

A personal loan, also called an unsecured or signature loan, is a loan given solely on a person’s creditworthiness. Even if you have a less-than-desirable credit score, there are providers out there who will gladly look past your credit score to lend personal loans. A personal loan is a lump sum amount that has a fixed rate of interest for a fixed number of years. It isn’t supported by any asset of yours (e.g. house, car). Some may find unsecured loans best while others may not. It really depends on a lot of factors. It’s a personal choice.

The Pros of Personal Loans

Personal loans can prove to be the right fit because:
Little to No Risk
This type of loan doesn’t require to declare any collateral, so there’s little to no risk. However, that doesn’t mean that you can take everything in a casual manner. You must still make timely payments! The good news is that your home or car is safe from repossession, in case you default on your payments.

Simple Application Process
The application process for personal loans is a lot simpler than that of secured loans, e.g. mortgage. For a mortgage, you have to apply, submit the asked documents, check your house valuation and other issues, exchange contracts and pay the solicitor’s fees. In case of an unsecured loan, you apply from the comfort of your home. It’s also possible that your application may be approved in 24 hours or less.

Additional Flexibility for Business
For businesses that need a certain amount in a short time, personal loans are the ideal equity-injection. These type of loans are mostly taken to finance the working capital needs of the business.

The Cons of Personal Loans

Personal loans can prove to be the wrong fit because:

Smaller Loan Amount
As unsecured loans are high-risk, lenders tend to limit the amount of money given out as a preventive measure against default. If they gave out more and the borrower didn’t return the money, they would be in for a huge loss. So, if you are looking for a lot of funds, you should try secured loans instead.

Higher rates and payments
Lending a personal loan to a person with bad credit is actually a lose-win scenario from the point of view of the lender. Thus, the high interest rates are justified. Because if the borrower doesn’t pay up, the lender loses their money and gets nothing in return.

Spoiled business image
If a business fails to repay personal loans, their image is tarnished and it can affect their ability to obtain future financing. Not to mention the damage to their credit score.

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