Personal loans are unsecured loans borrowed from a bank or non-banking financial company (NBFC). Such loans are borrowed to pay for personal emergencies or needs. Many people get a personal loan to finance expensive things such as foreign vacations, education, etc. The borrower pays back the loan in EMIs. If a person needs money to pay for a medical emergency or higher education, then they can get a personal loan to finance it.
Banks need to know the borrower’s details for a personal loan. They allow the loan if a person has a good credit history, income level, etc. While a home loan or a car loan is a secured loan, a personal loan is an unsecured loan. If a person gets a home loan, then the home will be collateral. However, there is no such security for the banks in case of personal loans. The banks don’t have any collateral, which is risky for them. If the borrower can’t pay back the loan, then the bank can’t sell any collateral of the borrower to recover the money. The banks reduce the risk by increasing the interest rate on personal loans. If the person fails to repay the loan, then there will be a bad impact on their credit report. Here are some benefits of personal loans-
Debt Repayment
A personal loan can help a borrower in debt repayment. If a person has different loans, then they will have to be pa at different interest rates. However, one personal loan can be borrowed to repay other loans. The borrower doesn’t have to pay different loans, they can only repay the personal loan after that. In such a case, a person can only focus on one loan. The repayment of the other loans can be done with a personal loan.
Home Renovation or Purchase
When a person gets a home loan, the loan only is for the house. However, there are many expenses other than buying a home. Home renovation or remodelling is one of them. The cost for such things can be expensive. A person can pay for it with a personal loan. Many people can’t pay for the house with a home loan. However, they can get the money needed with personal loans.
Emergency Expense
If a person meets with an unforeseen event, then they can get the money for the financial needs with a personal loan. Many people don’t have health insurance, personal loans can help them pay for medical expenses. Also, there are cases when the financial cover of health insurance can fall short. In such a situation, a person can borrow a personal loan. However, there are different factors for which a person can get personal loans. It doesn’t have to be only an emergency. While a personal loan can offer a person with financial help, it is important that the borrower pays it back in time. The interest rate of a personal loan is high and paying it soon can help in reducing the debt.
