Personal Loans – Disadvantages

Personal loan comes to great help in times of emergency. They are sanctioned quickly and require less documentation. Moreover, there is no need to any security collateral as it is an unsecured loan. Whatever may be your need for short term cash including funding a vacation, a medical emergency, quick cash for marriage and payments for a laptop, the personal loans are there to help you out. However, in addition to the numerous benefits, there are few disadvantages as well that comes with personal loans.

Disadvantages of personal Loans in India are as follows:

High interest rates – One of the major drawback of personal loan is the higher interest rates applied on the loan amount. They are unsecured loans and banks won’t ask for collateral, security or any sort of guarantee prior to issuing any personal loan. Thus, in a way it becomes a risky proposition for banks. In order to offset this risk, banks offer the personal loans at high interest rates. Another point is that personal loan interest rates changes from person to person. In case of person with good existing loan repayment track record and who is serving in a reputed MNC or public sector organization then he is likely to get a low interest rate on personal loan. The same rate of interest will be more for a person that do not fulfil the standard norms. Thus, a person who is a low risk borrower as per the bank will get a personal loan at 16% interest rates and it can climb up to 30% or more in case of others.

Not available to everyone – Another disadvantage of personal loans is that they are not available for everyone as the banks enforce strict income, residence and employment criteria prior to issuing any personal loan. Banks will only provide personal loans to those where they see the minimum risk involved.

No prepayments in parts – In case of a personal loan, the banks do not accept the prepayment in parts or instalments. The prepayment of personal loan needs to be done as an entire amount. Banks in India do not allow the prepayment in parts of any personal loan. Also, in case if a user has the good cash flow and he wants to pay back the entire loan, there is a prepayment penalty of 2-5 percent is charged on the outstanding amount that needs to be paid to the bank for making any prepayments.

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