Pros and cons of personal loans

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The life of modern people cannot be imagined without additional costs. The World Wide Web has become so commonplace that now it is even possible to obtain borrowed funds without leaving home.

This allows you to solve many issues if suddenly you do not have the necessary amount of money on hand, and there is no one to borrow from, or you don’t want to do it at all. Various types of loans including personal loans always come to the rescue. Today we will talk specifically about the advantages and disadvantages of personal loans.

The personal ones owe their demand to the fact that they have many advantages. They play an important role in the frantic pace of life of a modern person.

Personal Loan Advantages

  • the speed of processing an application for receiving funds: it takes from 5 up to 15 minutes, less often up to half an hour;
  • the decision comes either in the form of an SMS, or it can be a call from a bank or a microfinance organization offering a personal loan;
  • the minimum required package of documents: as a rule, it is a passport. Sometimes they ask to write a number or take a photo of a bank card;
  • no need to go to the office of a banking institution or MFO if the loan is taken online: it saves your time and you do not need to stand in lines.

Minimum requirements for potential borrowers:

  • US citizenship, age 18+;
  • Permanent residence permit;
  • Sometimes you may need a source of stable income. Still, microfinance companies are not always interested in this in order to give you a personal loan;
  • A large percentage of application approval: personal loans online are given to very many even to people with a tainted credit history;
  • Many convenient ways to get a personal loan: money transfers, bank cards, e-wallets, and sometimes a phone number.
  • Transparent and understandable terms. Only in an MFI, you will immediately know how much it will cost to get a personal loan. Nothing could be easier to think of. You enter the required amount and term on the site to see how much the overpayment will be. Even before the loan is issued, you will know the amount of all payments;
  • You can get a loan or instant cash from even with an imperfect credit history. The most common reason for refusal is information from the credit history. Many citizens in the past had problems with paying off loans and borrowings. Banks often refuse such clients. MFOs, on the contrary, know how to work with them by issuing a personal loan without any questions.
  • The ability to correct bad credit history. Another advantage of MFIs related to credit history is that small loans can be used to correct it. If you have an imperfect credit history, you will most likely not be able to get money from a bank but from an MFI. After you receive and repay several loans on time, the chances of getting a large amount from the bank will increase and this will positively affect your credit history.
  • Simple repayment scheme. For personal loans, the repayment schedule is as simple as possible: after the expiration of the term when using a personal loan, or earlier, you need to return the entire amount at one time. That is, what the client received from the MFI and the accrued interest. In verified MFIs with good lending conditions on the first personal loan, there is no such interest. The borrower returns the same amount that has been received.

It is difficult to disagree with the importance of the advantages of lending including a personal loan. However, everything has a flip side to the coin. This has not spared personal loans issued online.

Personal Loan Disadvantages

It should be said right away that the presence of shortcomings in personal loans is not so critical provided the correct and reasonable approach. Indeed, with a rational attitude, they can sometimes help a lot. For example, if there are several days left until the salary, and the stock of finances is close to zero. Another similar situation can be attributed to a sudden illness or car repair. However, if you want to apply for a personal loan, you must remember several significant disadvantages.

These include:

  • increased interest rate. In terms of benefits and overpayment, personal loans are much inferior to other types of lending. It will be much cheaper to apply for a personal loan in a bank than in micro organizations (especially if you provide a certificate of income). But this requires much more time and effort;
  • possible technical failures in the work of the sites of lending companies: sometimes it is impossible to enter your personal account or there is an error in the system when paying for a personal loan. This can also cause a lot of inconveniences when it comes to online lending;
  • hidden commissions or the imposition of unnecessary services: often in a hurry people inattentively read the contract or do not do it at all. There may well be hidden commissions in it and the final amount will be much higher than the originally declared one. This entails delays and the formation of a large amount of debt;
  • they can also impose services: most often it is some kind of insurance or improvement of credit history on a paid basis. When closing a debt, all banks and MFIs are required to send information about this to the credit bureaus free of charge.
  • small loan amount. Indeed, if you need hundreds of thousands or a million dollars, personal loans will not work for you. The essence of microfinance is to deal with urgent tasks that require small amounts of money.
  • short term. The same applies to the period for which the money is issued. Usually, it is up to 30 days, and in some cases, it can be up to 4 months.

In general, there are serious advantages and disadvantages. But it is obvious that when you weigh the pros and cons, a financially literate client can benefit from personal loans.

Maybe, some other loan products could fit your financial needs. Look no further than payday loans. To be completely informed, check the comparison personal loans vs payday loans and see their advantages and drawbacks.

Making a personal loan in micro-organizations requires no less reasonable and careful approach than lending in banks. Personal loans have their pitfalls. In addition, the electronic format of the loan agreement and the code sent (received in SMS) are analogous to the usual ones. Still, they have the same legal effect.