FREE
Credit Counselling

022 4012 4545

Bootcamp center

10,000 people are
CreditVidya certified. Are you?
Visit Bootcamp Center

Pros and Cons of a Personal Loan

Tuesday, July 24, 2012 by Madan Mohan

pl102n2Pros and Cons of a Personal Loan:

Pros:

Easy availability: A lot of banks offer personal loans of various amounts and durations. You can pick and choose between them.

No collateral: Personal loans are not very large amounts. They rarely exceed Rs. 4 lakhs. So there is no need to put up security or collateral against personal loan.

No criteria: You can opt for a personal loan without having to explain to the bank why you need it. You can take a personal loan for any purpose including travelling, home repairs, medical emergencies.

Quickly available: If you have a relationship with a bank you can get a personal loan sanctioned within 24 hours. Personal loans also require very little paperwork.

Improves credit history: If you regularly pay your EMIs on time then personal loans are a great way to improve your credit record. An improved CIBIL credit record can be very beneficial when you are looking for a new loan.

 

Cons:

High interest rates: After credit cards, personal loans have the highest interest rates among credit products. Sometimes personal loans have higher rates than credit cards also. 

High pre-payment penalty: If you pre-pay your personal loans, banks often charge a high penalty.

Need good credit history: Today, most banks give personal loans only to people with a good credit history. If someone regularly takes personal loans, he may be seen as someone who is not careful with his finances. 

Affects credit report: If you default on your personal loan your CIBIL credit report reflects it and your credit rating and credit score are affected.

Bad image: If banks access your CIBIL credit report and see a large number of personal loans, you are seen as someone who constantly needs money and who is indisciplined.

MadanMadan

Madan Mohan is your banker turned counsellor. Having spent more than three decades in the banking industry, Madan took up the role of Chief Counsellor at ICICI Bank promoted, Disha Financial Counselling Centre. During his five year tenure, he helped distressed customers come out debt trap and helped others from falling into one.

Follow Madan on Google+    Email Madan

Latest Articles

Back to basics for students
Posted in: Education Loan
Posted on: 14 Sep 2012

About Credit Vidya

We, at Credit Vidya, believe in empowering you. Because we believe that knowledge is not only power but also gives you a sense of belonging. We believe in supporting the consumers by not being their crutch but as catalysts and enablers.

Get FREE Updates

Filled with news, money-saving tips and financial how-tos to live your richest life.

Credit Tips

Make sure that all deals and offers agreed upon are supported by relevant papers. You should always ask for a letter in a banks letter-head mentioning the likes of, exact rate of interests, processing fees, pre-payment charges along with interest-schedule.

Read more tips

Success Stories

Dr. K. S. Sobhana

Dr. Sobhana, a Senior Scientist with Central Marine Fisheries Research Institute, was having trouble with her auto loan because of her CIBIL report. She spoke to one of our Credit Experts and ...

More Success stories