An urgent financial commitment could be killing but looking into the types of loans on offer could be confusing. It is indeed difficult to identify the loan that offers comfortable arrangement throughout the loan term. Personal loans have many advantages over other types of loans but they have their disadvantages too. Some of the risks that go with obtaining personal loans are mentioned below for a quick read.
Higher Interest Rate
While personal loans are processed quicker and with less documentation, you are charged a higher rate of interest than in various other loan types. In personal loan the lender attempts to soften the risk of non-repayment as there is no collateral security for him to fall back on in case of payment default. Hence, the interest rates are higher. Thus you are paying more money in terms of interest, which could cause a dent in your financial position. It would do well to remember that in most cases, higher interest rates lead to more loans as the borrower finds it difficult to honor the commitment.
Late Payment Penalty
This is a fact that most overlook when seeking personal loans. The offers might be tempting but you need to look farther to evaluate the risks as well. If you default on loan repayment, you will be charged heavy penalty. This could affect your budget and throw you off balance. When on a tight budget, even the smallest hiccup could cause you dearly. Hence, it is essential to go through the terms and conditions of the personal loans offered by various banks to land on the right offer. If the loan amount, interest rate and loan term offered by different banks are the same, you may need to look into late payment penalty, which could help with decision-making.
Pre-closure Could Attract Penalty As Well
If you wish to settle your loan in advance when you have excess cash, you may be charged penalty. Some banks do not allow pre-closure of loans and hence once you are committed to a particular loan term, you are to stick on to it. Hence, this is also an important factor that needs consideration once you go in for personal loan.
Non-payment Could Lead To Legal Issues
This could be the worst scenario for a soul that is already distressed with loan burdens. While you might have made the best calculation while opting for personal loans, you might have some new commitment or a problem on hand that could make you default on your payment. The consequences of non-repayment of personal loan could lead to legal proceedings. The lender might seek the court to get back the money. If the pending amount is heavy, the court might order for attachment of earnings, which would be acquiring the repayment dues from your salary directly. Alternately, the court may produce a verdict that could lead to securing the personal loan against equity in your home.
Financial crisis has become a part and parcel of the lives of many. However, it would do well to remember that seeking personal loans are not the best alternative to having a systematic approach to saving for unexpected expenses. Personal loans are to be obtained only when an emergency necessitates immediate settlement and these loans are best avoided to buy a luxurious item or spend a holiday in a resort away from home. While obtaining personal loans, thoroughly study the terms and conditions to finalize on the right offer.