If you are in a dire emergency, to take a loan, we suggest that you look for various options from loan against shares to loan against gold or property and avoid personal loans. In fact, we see almost no advantage in taking a personal loan. Here are 5 good reasons not to take a personal loan.
Why you should not take personal loan?
1. Interest rates are high
The interest rates on personal loans are next only to interest rates on outstandings on your credit cards. The interest rates can be as high as 24 per cent. When you compare it with other loans like gold loans, auto loans, loans against property or loans against shares, we realize that it is exorbitant. This is one of the biggest disadvantages of a personal loan and make it a bad proposition.
2. Pre-payment charges
If you take a personal loan, there are prepayment charges. But, if you go for other loans, there are no pre-payment charges. For example, in the case of gold loans there are no pre-payment charges whatsoever.
3. No loan if your credit score is bad
In case you have a very bad credit score, chances are bright that your loan could be rejected. Banks may most certainly decline a loan.
4. Processing fees
The processing fees in the case of personal loans is far higher when compared to gold loans. This is another reason that personal loans have a disadvantage.
5. Need income proof
Without an income proof there is no way you would get a personal loan. However, this is not true in the case of gold loans, loan against shares and loan against property, where the collateral enables you not to show any income proof.
To conclude, personal loans are not the best form of loan to take. If you are ready to pledge shares, gold or property, they are far better. However, here one should remember that you need to pay-back the loan, as you have pledged things with the bank.
Another disadvantage of a personal loan is that the disbursal takes time and it is not the fastest loan around. Hence, it is better to take other loans in place of personal loans.
In fact, this should be your last option given the interest rates, processing charges, pre-payment charges etc. Also, in case you somehow desire to take the same, it would be advisable to compare interest rates and other charges before you avail the same.