Why A Collateral Is Not Involved In A Personal Loan
Personal loans do not require any collateral because they come under the category of unsecured loans. An unsecured personal loan enables you to borrow money without having you pledge anything as security to the credit lending agency. Unsecured <a do not need security, like a house or car, for acceptance. Rather, credit lending agencies issue these loans based on the information they fetch about you, like your CIBIL score, regular income and outstanding obligations.
Unlike other loans like car loans or gold loans that require a security to be sanctioned, where the lender can sell off your security submitted with them to write off their loss, in an unsecured loan the maximum the lender can do is to file a lawsuit to extract the money. The lawsuit might direct the lender to extract money by confiscating the borrower's personal assets.
However, in case a guarantor has also signed up for you, after you, the lenders would turn to the guarantor for the money. If the guarantor also is unable to pay back the amount. The lawsuit can be filed against the guarantor too and the court can also direct the credit lending agency to sell off the guarantor's personal assets to offset their loss. You can use funds from a personal loan to spend on almost anything, but the most favourable use of personal loans is to achieve a financial objective without adding unmanageable debt.
If you’re contemplating whether you should go for an unsecured personal loan or not. it's important to learn the pros and cons :-
Pros :-
You can get your money more quickly with an unsecured personal loan since a secured loan like a car loan, may require extra documents such as proof of ownership for a car.
The lender can’t take your property right away if you are unable to make payments. However, they can file a lawsuit against you and there they can claim ownership of your personal belongings.
Borrowers who have an excellent credit rating (750 and above) can qualify for the lowest interest rates which can be as low as those on secured loans.
Cons :-
Unsecured personal loans are unsafe for lenders because they'll have a hard time extracting money in case the borrower defaults, therefore these loans can have higher interest rates. If you don't have a good credit score, then the interest rates can get even worse for you.
If you are unable to pay off an unsecured personal loan, your credit score will be adversely affected.
You can be sued for not paying the debt. This order can also allow the credit lending agency to self your personal assets to compensate for their loss.
Repayment structure :- Personal Loans are short term to medium term loans which means they can be repaid as early as 12 months and as long as 5 years. Some lenders even offer more than 5 years to pay back the loan. Personal loans usually come with a flexible repayment structure. Generally, you will repay the loan in EMIs or equated monthly instalments that are fixed monthly instalments to be paid on a fixed date every month. You can also adjust your repayment tenure to make your EMIs budget-friendly. Banks like HDFC offer <a HDFC Personal Loan with EMIs starting at as low as Rs 2,149 per lac. You should check the EMIs on Personal Loan EMI Calculator first to plan your refund structure better.
Personal loans have been the most popular option since the pandemic has hit our world. With the newer options in personal loans products, even those people can avail a loan for whom it was next to impossible earlier to get a loan. Banks and other credit lending agencies are rolling out new and innovative solutions for the financial problems of people every day.
Also read this: The best option to finance is a personal loan