Personal Loan: Personal loan is often called an emergency loan because it is an easy way to meet the immediate need for money, especially when you have no other arrangement for money. However, taking it without thinking can be costly. Later many people regret paying its high EMI.

If you are also planning to take a personal loan, then definitely consider 6 things, so that you get an idea of its pros and cons and you do not have to regret your decision later.

1. High Interest Rate-
A personal loan is an unsecured loan, which means that you do not have to mortgage any property. Because of this, the risk is high for banks, and they charge high interest rates to compensate for this. These rates can usually be 10 to 24 percent or even more, which is much higher than a home loan or car loan.

2. Negative Impact on Credit Score-
If you fail to pay your EMI on time, your credit score (eg CIBIL score) falls very fast. With a bad credit score, you may find it very difficult to get another loan (eg home loan or car loan) in the future.

3. No Tax Benefits-
You get income tax exemption on the interest paid on a home loan or education loan. But you usually do not get any tax benefit on personal loans. This means that you pay the entire amount from your pocket and are not able to save any tax.

4. Risk of Debt Trap-
Personal loans are easily available, and people often take them for non-essential expenses (eg holidays, expensive gadgets). But if it is not managed properly, then the person starts taking another loan to repay one loan and gets trapped in the debt trap.

5. Additional Fees and Hidden Charges-
Not only interest, many other charges are also associated with personal loan, such as-

- Processing Fee: It can be from 1% to 3% of the loan amount.

- Pre-payment Charges: If you want to repay the loan before time, the bank can charge you a penalty.

- Late Payment Fee: There is a heavy penalty for repaying EMI late.

GST: GST is also levied on all these charges, which makes the loan more expensive.

6. Short Repayment Tenure-

The repayment period of a personal loan is usually 1 to 5 years, although in some cases it can go up to 7 years. A shorter tenure means your EMI will be higher, which may put more pressure on your monthly budget.

Disclaimer: This content has been sourced and edited from Hr Breaking. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.