A personal loan that is not backed by any collateral or security is termed as an unsecured loan. As compared to the secured ones, these loans are more common as they are easily accessible and have quick and simple documentation and approval system. Unsecured loans, however, are riskier for the lender as if the borrower defaults, they have no option for recovery.
If you too are looking for financing options then make sure you go through the pros and cons of an unsecured personal loan.
Advantages of unsecured personal loan
Personal loan offers various advantages to the borrower, which is why individuals prefer the online Fullerton India personal loan. Some of the advantages include:
1. No risk to personal property: As the personal loan does not come with any collateral, there is no risk of losing your collateral like a house, car, gold, etc. If you are someone who does not have any valuable possession, then an unsecured personal loan is a great option to get funds. Even if you default or are unable to pay the monthly payments due to unforeseen reasons, you will not lose anything.
2. Simpler application process: The application process for an unsecured loan is simple and easier. If you are eligible for the loan, you can apply and get the loan approved and disbursed in no time. A personal loan is also offered by various online lenders, which have a simple and comfortable application process. You can sit at the comfort of your hose and get your loan from a peer-to-peer lending site and get your loan approved in less than 24 hrs.
You need to make sure that you have a good credit history and score, along with proof of a stable and secure source of income.
3. Can be used for any purpose: Unlike secure loans like car loans, home loans are taken for a specific purpose, a personal loan can be used for any purpose of your choice. They can be used to fund a multitude of expenses without any issue.
4. Tax Benefits: While not all personal loans provide tax benefits if you are using the loan for increasing the revenue of your business or for home renovation purpose, then personal loan also comes with its share of tax benefits.
Disadvantages of Personal Loan
While the pros may sound enticing, the personal loan also has some disadvantages which one must be taken into consideration before making a choice. The disadvantages include:
1. Tough eligibility criteria
As the personal loans are unsecured, the risk to the lender is high. To compensate for this the eligibility criteria is tough and requires an excellent credit score and no outstanding debt.
2. The smaller loan amount and high interest rate
To avoid the risk, the PolarMortgages UK Natwest make sure that the borrowed amount is repaid on time, which is why the sanctioned amount is low. Along with These unsecured personal loans also come with a high-interest rate, increasing your monthly payment.
3. Defaulters can be prosecuted
If one defaults or is unable to make the payment on time, the lenders have the power to prosecute the individual in court. While it will lead to societal shame, the fee of the attorney is an added expense.
Conclusion
Unsecured loans have their advantages as you can get the funds without going through a strict underwriting process and the loan also helps in covering all your unwanted expenses. However, one must weigh both the pros and cons before making a final decision. So, go through the advantages and disadvantages once again before you opt for an unsecured personal loan as despite its advantages it can backfire you and drill a hole in your pocket.
Instead of looking at what you will gain from the personal loan, also look at what you may lose.
