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Personal loan is the money that a person borrows from the lender to meet his financial needs and requirements. The loan borrowed, helps you to meet your personal needs like buying a house or land, college expenses, or even buying jewellery etc. With the ever-increasing cost and inflation rates, these loans give the people an opportunity to fulfil the demands that circumstances make on them. These loans have a collection of advantages and disadvantages attached to them.

Types of Personal Loans

There are two types of personal loans, which can be borrowed on account of their flexibility. Secured personal loans are backed by a collateral belonging to the borrower in order to cover any risk. Unsecured personal loans don't have any security and lender takes the risk of giving money to the borrower without any back up. Pros and cons of personal loan are based on these two types of personal loans

Pros of Personal Loans

Banks and other financial applications give such holiday loan applications less importance. The processing of the loan application is usually done in a couple of weeks to a few months. An applicant can improve the priority status of the application by showing the dire need for the loan to clear off the holiday debt. Usually, such loans cover:

Flexibility :
Personal loans are flexible and can be used for any purpose with a very minimal involvement of paper work.

No Security :
In some cases, like home loans or loans against property, there is no need to back up the amount by a collateral or security.

No Middleman :
The borrower can directly contact the lender without any middleman involved.

Complete Authority :
The borrower has the complete authority and liberty to use money anywhere he likes. The lender is just concerned about receiving the installments every month.

Cheaper :
Borrowing a personal loan is much cheaper than borrowing on credit card. The rate of interest of personal loan is much lower than credit card rate. Cons of Personal Loans
With its many advantages, personal loans also have some disadvantages which include-

Risk :
One of the main disadvantages of personal loan is the risk factor involved in it.

Eligibility Categories :
Personal loans have many pre-approved eligibility categories for the borrowers before sanctioning a loan.

Capability to Repay :
With greater risk involved, the lenders also check on the capability to repay the amount.

Rate of Interest :
A high rate of interest can be charged, if a person has a weak credit score.

Some Quick Tips

In order to reduce the pros and cons of personal loans, one must keep some points in mind before applying for a loan. Some of the quick tips include-

Varying Interest Rates :
The interest rate varies from bank to bank and on the personal profile of a person. Before applying for a loan, you must have a look at the interest policies of various banks.

Hidden Charges :
Go through the service charges, foreclosure charges, or hidden charges, carefully while borrowing a loan.

Negotiable :
Personal loans are highly negotiable therefore one should negotiate while borrowing this type of loan.
Various personal loan pros and cons as discussed above give personal loans an edge over other loans. You just need to be careful while selecting a bank and should, in totality, understand its services.