Personal Loan, a Growing Financial Trend

Personal Loan is a kind of Short - Term Loan, which can be used by an individual for getting an assistance in covering his or her personal expenses. This loan covers expenses like Holiday Expenses, Medical Expenses and Marriage Expenses to name a few. This loan may be termed as an unsecured loan because banks usually don’t require the borrower to submit any security deposit item also known as Collateral. Objects like a House or Car are examples of a Collateral.

            There are two types of Personal Loans known as Secured Loan and Unsecured Loan. A Secured Loan also known as Personal Bad Credit Loans are usually offered to a borrower that has a low credit score or if a credit history has a record of  missed payments. A Secured Personal Loan needs a collateral to recover some amount of money lent in case of default in payments by the borrower. An Unsecured Loan is usually offered to people who have a high credit score, who have a long record of timely payments in their credit history and can make adequate  money to be able to pay the loan off  in an easy manner.

             There are various advantages of a Personal Loan are as follows. If compared to other loan items such as home loans, a borrower does not need to submit a collateral to apply for a personal loan. In the case of Personal Loan, the paper work is also minimum if compared with other loans, making the loan procedure faster. A borrower also does  not need to specify the end use of the money when he or she applies for a personal loan. The lender is only interested in knowing that whether a borrower is capable of paying the Loan EMI every month on or before the due date. It is also cheaper for a borrower to get a Personal Loan than to borrow on basis of the credit card. Thus, if a borrower has to accumulate an enormous outstanding amount on his or her credit card and the accumulated interest is making it very difficult to clear the outstanding, a personal loan might be the way to go. Here, a borrower can use the money borrowed at a lower interest rate through the personal loan and can pay off the money borrowed at a higher rate through outstanding amount on the credit card.

              There are various disadvantages of a Personal Loan also and are as follows. Since banks identify a high risk in this category, many banks follow a list of categories of borrowers who are well approved. If a borrower’s profile doesn't match with any of these already approved categories, the loan application will not be accepted. Another drawback is that the interest rate of a personal loan can be high, at times double the amount of home loans. This can happen especially if a borrower’s credit profile is not strong enough.

              Nowadays, most private and public sector banks provide Personal Loans to their customers, if asked for.