The benefits and drawbacks of unsecured loans are both potentially numerous but will vary not only from individual to individual but entirely dependant upon the circumstances the individual finds themselves at any given time. Regardless of what these circumstances may be, however, it is important that anyone considering taking out a personal loan take the required time to weigh up these benefits and drawbacks and how they apply to them at the time.
The most obvious benefit of taking out a personal loan is that the loan will allow someone to make a purchase almost immediately rather than waiting until they are able to save up for it. This could include a new car, the trip of a lifetime, or even extensive new furnishings for the home. Purchases on this scale could take years to save for, so instead of putting a little away each month, a loan is taken from the bank and paid back a little each month for the relevant time period.
Another benefit of taking a personal loan is that if someone has got themselves in to the unenviable position of having a lot of debt outstanding on credit cards, taking a personal loan to repay all of same may prove to be a very viable option. The interest rate on the personal loan is likely to be considerably lower than on the credit card or credit cards and the fact that only one monthly repayment amount will be required to be made each month could permit much more effective budgeting.
The drawbacks of taking a personal loan include the fact that the purchase perhaps made with same will effectively cost a lot more than it would have done if made from such as savings. The interest on the loan over the period of its term could effectively make this difference quite significant and also has to be compared to the interest that would have accrued on the savings during the period it would have taken to accumulate them.
Taking a personal loan could also be a drawback in the sense that it is a long term financial commitment. If the individual’s financial situation were to deteriorate during the term of the loan, they have to consider how they would go about making the repayments.
Personal loans therefore have both their benefits and their drawbacks and the only common factor in all cases is that it is important that the reasons for taking out the loan, the affordability of doing so and the commitment of doing so be examined in full in the first instance.