Personal loans may sound very appealing to someone who is looking for a little source of reassurance in his or her finances.
The thought that there is a little extra money in the bank account in case of an emergency or for a big splurge is a very tempting thought. However, people forget the fact that a personal loan is a binding obligation. It obligates you to return the money you borrowed with interest and over a certain period of time. What borrowers need to be sure of is that, are they willing to commit to this responsibility?
Personal loans constraint borrowers in terms of their money and property. Once you take out a loan, you are required to deposit some sort of collateral. “Collateral” is the property that the lender holds until the loan is repaid. In case of nonpayment the lender can claim your property legally as a prior contract has already been decided upon. This is a very serious risk to take.
Personal Loans: As Perfect as They Seem?
Having a good credit report certainly eases your way to applying for a personal loan, but even then there are many terms and conditions, the most worrying of which is the afore mentioned, having to mortgage one’s property. Anyone with a bad credit report has to face a lot of difficulty while applying for a personal loan. They have to pay higher rates of interest. The duration offered to them for repayment is comparatively shorter than that offered to people with good credit.
While personal loans are the answer to many solutions they are a serious problem too. A much better option is a separate savings bank account, which can be used in need of emergency. It is preferable to limit your financial needs more effectively rather than be piled up with financial and psychological albatross.