Personal loan pros & cons

Introduction

In India, money emergencies don’t always knock before entering. One day, you’re enjoying your chai in peace, and the next, your bike meets with an accident, your child’s school fee reminder shows up, or your parents’ medical bills come in. Sometimes, you’ve saved enough, but sometimes… you haven’t.

This is where a personal loan steps in — a lump sum of money from a bank or NBFC without you having to pledge your gold jewellery, property papers, or fixed deposits. It sounds like a perfect backup plan. But as every Indian knows, every shortcut has its own bumps on the road. Personal loans have benefits, but they also have drawbacks. Let’s talk about both — in plain words, so you can decide if it’s the right move for you.

What Is the Benefit of Obtaining a Personal Loan?

The biggest benefit? Speed and no-questions-asked use.

Think of Anjali, a working professional in Bengaluru. Her younger brother’s wedding date is fixed suddenly, and she wants to help with the expenses. She doesn’t have enough liquid savings, and selling gold would take time. She applies for a personal loan through her bank’s app — uploads her salary slips, PAN, Aadhaar, and within a day, the money lands in her account.

That’s how simple it can be. No bank officer asking, “Are you buying a house or a car?” No restriction on spending. Whether it’s funding a small home renovation before Diwali, covering hospital bills in an emergency, or taking your parents on a trip to Haridwar, the choice is yours.

Pros of Personal Loan

Here’s why many Indians opt for personal loans:

• No Collateral Stress: You don’t have to hand over your house documents in Chennai or keep your grandmother’s gold bangles with the bank. It’s purely based on your income, credit score, and repayment capacity.
  
• Quick Approval: Banks like SBI, HDFC, and ICICI — and even fintech lenders — can approve and disburse within 24–48 hours. Some promise same-day transfers.
  
• Use for Any Purpose: Pay for your cousin’s wedding caterer in Jaipur, buy a laptop for your child’s college in Mumbai, or cover a sudden hospital bill in Lucknow — the bank doesn’t decide for you.
  
• Clear EMI Structure: From day one, you know exactly how much to pay each month and for how long.
  
• Credit Score Boost: If you take a ₹2 lakh loan and repay every EMI on time, your CIBIL score improves, making it easier to get home or car loans later.

In short, a personal loan is like that helpful relative who shows up when you need cash urgently — without asking for gold as security.

Cons of Personal Loan

Now here’s the flip side — things that aren’t so rosy:

• High Interest Rates: Because the lender is trusting you without any security, interest rates are usually higher — sometimes 14–20% in India, compared to 8–9% for home loans.
  
• EMI Pressure: Life in India can be unpredictable. Your business in Surat could have a slow month or your salary in Noida could get delayed, but the EMI date won’t wait. Miss it, and penalties follow.
  
• Temptation Spending: Many borrowers take a loan for things they don’t actually need — like an expensive phone, a fancy foreign trip, or impulsive shopping — and regret it later.
  
• Credit Score Damage: Two missed EMIs can drag your CIBIL score down, affecting future loans for years.
  
• Extra Costs: Processing fees, prepayment charges, and late payment penalties can make the loan costlier than you expected.

Taking a personal loan without thinking it through is like booking a Goa trip during peak season without checking ticket prices — it feels great at first but hits your pocket hard later.

FAQ

Q1. What are the drawbacks of a personal loan?

 The main drawbacks are high interest rates, strict EMI commitments, and the risk of falling into debt if borrowed for unnecessary expenses.

Q2. Is personal loan good or bad?

It can be both. If used for emergencies, important purchases, or consolidating debt, it’s a useful tool. But if taken for luxury spending, it can turn into a long-term headache.

Q3. What are the risks of personal loans?

 You could end up paying more because of interest and hidden fees, damage your credit score by missing EMIs, or get stuck in a cycle of borrowing.

Q4. What are the advantages of a personal loan?

It’s quick, doesn’t require collateral, can be used for any purpose, and has fixed monthly payments, making budgeting easier.

Final Thoughts

In India, where life can surprise you at any moment, a personal loan can be a lifesaver. It’s fast, flexible, and doesn’t need you to mortgage your home or pledge jewellery. But it’s also a responsibility — one wrong move and the EMI burden can become heavy.

So, before hitting that “Apply Now” button, ask yourself:

• Is this for a genuine need?
  
• Can I comfortably manage the EMIs for the entire loan period?

If the answer is yes, a personal loan can be your financial cushion in tough times. If not, it’s better to wait, save, and avoid the monthly repayment stress.

Disclaimer : Investments in debt securities/ municipal debt securities/ securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully.