Pros and Cons of the Personal Loan Explained

Personal Loan

An unsecured loan or a personal loan is a convenient way of arranging funds for an emergency. In these loans, you don’t need to deposit any guarantee or collateral. In contrast, secured loans like home loans or vehicle loans require the security of property or vehicle or other tangible assets. Personal loans are one of the most used financial commodity amongst commoners and small businessman.

Unsecured Loan; Pros and Cons

The reason being it is riskier on the part of the lander rather than the borrower. But there are always two sides to a coin. With all the advantages of an unsecured loan, there are certain downsides as well. We want to educate you through this article about the pros and cons of a personal loan. Let us explain in detail to help you make a conscious decision.

Advantages of Unsecured Loan

  • No Assets Involved

As explained earlier, there is no collateral involved in taking a personal loan. You only need to maintain a good credit score to prove your worth. This fact doesn’t decrease the liability. But it is a breather that, in worst-case scenarios, you won’t lose your assets. And this “no collateral” clause makes it possible for you to take a loan even if you don’t own any asset.

  • Easy & Less Time Consuming

The process of applying and getting a personal loan is relatively easy and quick. The paperwork is simple. And some banks offer to disburse the loan amount within 2-5 days. You can get a personal loan instantly from many online lenders as well. Whereas secured loans take 1 week to more than a month to process.

  • Freedom to Use 

One of the top advantages of an unsecured loan is that lender will not interfere in its usage. You can use the loan amount for any requirement without giving any explanation. Whereas commercial, home or vehicle loans are given against the papers of the assets only. A personal loan can be a multi-purpose loan that you can use in more than one way.

  • Credit Score

You might not need an unsecured loan now. But you might need a significant business loan in future. Taking a personal loan and making its repayment on time creates a favourable credit history for your profile. This will benefit you in the long run. Going by your good credit score, lenders will give you loans more quickly.

  • Pre-approved Credit Limit

You can take approval from the bank for a certain amount. But you don’t necessarily need to borrow that amount. There is flexibility to take less amount as credit. This system of flexible borrowing and repayment is like a guarantee for your bad times. You need to pay the interest for whatever money you’ve taken only. Many financial apps also provide pre-approved credit limit.

Disadvantages of Unsecured Loan

  • Perfect Credit History

There can be a situation where you didn’t pay an instalment in time. Or you forget the due date of your credit card bill. Every small mistake gets reflected in your credit score. The lender’s doubt on you increases. Therefore they can either deny the loan. Or they can ask for a higher interest rate than usual to cover their risk.

  • High-Interest Rates

The lender is at risk in case of an unsecured loan. Therefore they try to cover their maximum risk through higher interest rates. The rate of interest of a personal loan is almost double the rate of secured loans. You can consider it a convenience price, but it is one of the prominent disadvantages of an unsecured loan.

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  • Less Time for Repayment

Unlike secured loans, you don’t get unsecured loans for 10-25 years. This rule is because there are no collaterals or guarantees involved. You can get it for tenure of few months to 5 years maximum. As a result, the EMI amount increases. This may strain your monthly budget sometimes. Usually, the amount of personal loan is also limited to a certain extent only.


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