Benefits of a Personal Loan

At least once in our lives, we have all wanted to desperately make a purchase, but haven’t had the liquid cash available at the time. At these times, we do turn to our trusty credit card, but we also have another option – one that we don’t always take into account. This option is taking out a personal loan. We all plan our finances to cover all contingencies of life, but it is still not possible to say when a dire need will arise, when we need finance very urgently for some unforeseen event. This could be a sudden medical emergency or any other event that is over whelming for the best of people. The only option left at times like these is to take out such a loan from a financial institution or a bank.

These loans are an often neglected line of credit. They do not require any collateral to be given. This is one of the main reasons why they can be very useful for the borrower. But it is necessary that the borrower understands what he is signing up for with such a loan. The intricacies of the loan are easier said than done. But once the borrower is clear on the terms, there are a lot of benefits he can reap from such a loan.

One benefit is that the loan is cheaper than credit card debt. The reason for this is that the rate of interest on the loan is negotiable. The borrower’s credit history is what plays the most crucial role here. Anyone with a good credit history can bargain hard on the terms of the loan. The tenure of the loan varies in the slab of the amount borrowed. This is generally from one to five years, with some banks extending this tenure to even seven years, depending on the amount. The rate of interest of a loan is fixed for the entire tenure of the loan. Once the agreement for the loan is signed, even if the rate of interest is changed in the market, the rate for the borrower does not fluctuate. The fixed interest rate is very helpful for borrowers as this allows them to plan their repayments well. The loan then becomes like a fixed equated monthly installment loan for the borrower. This makes it easier for the borrower to budget the repayment in the expenses for every month and allows the borrower to be clear on the repayments.

While taking out such a loan used to be a big taboo in the past, they are actually more profitable than having credit cards. The smart borrower realizes this and substitutes his credit card debt with a loan.