Disadvantages of personal loans • High interest rates: Since personal loans are unsecured, lenders are at a greater risk if the customers default. In order to offset this risk, lenders attach a higher rate of interest to these loans. • No part payments: You have to pay your loan throughout the tenure. Part payments are usually not allowed by lenders. This way you end up paying higher since most of the initial payments go towards interest. • Good credit rating required: Since these loans are risky, most lenders check your credit rating before lending. Thus if you have defaulted on any loan or possess a poor credit rating, it is unlikely that you will get this loan. • Amount and interest as per your rating: Even if lenders willingly offer loans to people with poor credit rating they offer lower principal amount with a higher rate of interest. It is advisable to go for a personal loan if you are in urgent need of cash, you do not have any assets but possess a credit card. Using your card to withdraw cash would be very expensive. On the other hand, if you own assets like property, gold or shares, it is recommended that you take loan against these assets because these loans attract lower interest rates. Try not to apply for the loan unless you are in desperate need of it. While the loan is useful in certain exigencies it is not advisable to use it to fund your travel expenses. Thus it becomes essential to gauge the merits and demerits of a personal loan before applying for it. |
