Don't Get a Personal Loan, Here's Why

No personal loan, please!

A personal loans looks attractive to many because it requires neither a security nor a guarantor and more importantly, the lender does not ask you what you are borrowing the money for. In spite of its high costs, they find a personal loan more acceptable than seeking the help of their relatives and friends. However, notwithstanding some tempting features, a personal loan has a number of drawbacks that should be taken into account before a person rushes for one.

Dangers to be careful of

Many personal loan lenders often introduce features such as ‘buy now pay later' or offer free gift items just in order to increase the price of your loan. Without being lured by those packages, you should always concentrate on the basic loan and its terms and conditions. Look for those loans that carry a low rate of interest and have moderate terms of repayment.

A personal loan also comes with a high interest because the lender will always try to cover its risks because of the absence of a security or a guarantor. The lender only relies on the fact that you earn a certain amount of money to repay the loan. So, you will have to pay the price for the lender's risk.

Misleading interest rates

Moreover, the interest rate presented by a lender is often misleading and designed to take you for a ride. In some cases, the interest is calculated on the basis of a monthly reduction, which means that when you pay your principal, the following month's interest rate will be over the reduced amount). In some others, this is done on a yearly basis but the former is more suitable.

The annual percentage rates are one more area of concern that should be handled very carefully because it has to completely do with your financial credibility. In order to find a place on the lender's list of possible customers, you will be required to have a satisfactory credit history. It is observed that a large number of personal loans are paid off even before their tenure is completed. You should, therefore, look out for lenders who take heavy amount when you settle your loans before the tenure. So, compare and analyze all the offers and schemes and study the contract thoroughly to check out for any hidden cost before you finally seek a personal loan. This will guard you against unscrupulous lenders whose motive is just to earn profits.