Rising consumer spending and easy access to credit are leading consumers to take on multiple credit facilities to fulfill their lifestyle aspirations. As a result, many consumers are increasingly being burdened with high-interest debt, leaving them with insufficient funds to invest in their crucial financial goals. For those struggling with multiple debts, consolidating these debts into a single loan with a lower interest rate can reduce both their debt burden and overall interest costs. Among the various loan options available for consolidating outstanding dues, individuals usually choose personal loan for the following reasons:
Post Contents
Savings on Overall Interest Costs
Personal loans are usually offered at an interest rate of 10.49% p.a., with some public sector banks providing even lower rates. While personal loans are unsecured and thus, have higher interest rates compared to secured loan options, they are still much lower than the finance charges on credit cards, which can be 40% p.a. or higher. For example, SBI Personal Loans start at 11.15% p.a., which is significantly lower than the rates charged by many credit card issuers.
If you are struggling with high-interest debt on multiple credit cards or loans, consolidating them with a personal loan can reduce your overall interest costs. Personal loan repayment tenures usually range from 1 to 5 years, which can also help lower your monthly repayment burden.
No Need for Security/Collateral
The unsecured nature of personal loans is another key reason why many borrowers opt for this credit option to consolidate their debts, particularly for people with bad credit. Unlike secured loans, such as loans against property or secured business loan, which require borrowers to pledge assets as collateral, personal loans do not require any collateral. This means borrowers do not have to worry about losing their assets in case of a default. Secured loans involve the risk of the lender auctioning the pledged assets to recoup losses, but personal loans eliminate this risk.
Faster Loan Processing and Disbursal
Personal loans are generally disbursed faster than most secured loan alternatives. This is because secured loans require more time for due diligence on the pledged asset, whereas personal loans are approved based on the applicant’s credit profile. The integration of digital infrastructure in the lending process has enabled many lenders to offer personal loans online, significantly reducing the loan processing time.
Many lenders also offer pre-approved personal loans to their select existing customers based on their credit profiles. Such loan offers usually feature instant loan disbursals. As lenders already have the KYC details of their existing customers, these loans require minimal documentation, further speeding up the process. This allows lenders to disburse the loan amount within minutes of receiving the application. Hence, individuals planning to avail personal loans for debt consolidation should first check their eligibility for pre-approved personal loans by contacting lenders with whom they already maintain deposits or have loans or credit cards. Then, they should visit online financial marketplaces like Paisabazaar to compare the personal loan offers available from other lenders based on their credit profile.
Requires Less Paperwork
As personal loans are not backed by any underlying asset, they involve less paperwork compared to their secured alternatives. Loans against property and loan against securities require extensive documentation for collateral verification. In contrast, personal loans generally require basic documents such as proof of identity, address, and income. Some lenders even offer personal loans with minimal or no documentation to their select existing customers, leveraging their existing KYC details. This streamlined process allows for quicker loan disbursement compared to secured loans.