There are many instances in our lives when we may experience sudden cash crunch. It could be due to sudden illness, job loss, death of the main earning member in the family. In such a situation, it is very easy for us to opt for a personal loan in order to tide over our crisis.
Why personal loan? This is because personal loan is easily available. There is no need to submit excess documentation as well as collateral. In certain cases, you can get the loan within 2 minutes on the telephone. Moreover unlike other loans, you are free to use the money for any purpose. You don’t have to declare your purpose to the bank.
But is it right for you? You need to ask this question because as the personal loan does not need any collateral, it becomes an unsecured loan. Any unsecured loan carries high rate of interest than a secured loan like car or home loan. This means EMIs in this case will be higher. You should be comfortable repaying the EMI, failing which you wil be labeled as a defaulter.
So what should do? If you are not able to pay the high EMIs, you can consider other options. Do you have an FD with a bank? If yes, then you can take a loan against FD, as its rate is slightly higher than the rate of FD. If you have shares, you can avail of loan against shares. Nowadays many banks also offer gold loans against your gold jewelry.
Why go for these loans? Simple, they are cheaper. Interest on any secured loan is cheaper than an unsecured loan. This will lower your EMIs and thus save you money.
You are in urgent need of cash. On one hand you have the option of withdrawing cash by using your credit card or opting for a personal loan. How do you choose the best option? Which is the right choice for you?
The best part of taking cash against your credit card is that you don’t need any approval from the bank. You can get the cash whenever you want. All you need to do is go to your closest ATM and withdraw the cash. Also you can pay off the loan whenever you want. There are no prepayment penalties if you choose to pay the loan any time you so desire. But the major drawback of taking loan against credit card is exorbitant charges, levied by the bank. You not only have to pay cash withdrawal fees but also the interest on the amount withdrawn. This can make this loan very expensive.
On the other hand, personal loan needs your bank’s approval. You should have a good credit record to avail of this loan. Also if you are looking for immediate cash, this loan is not for you, as banks need some time to process your application. There is a processing fee, which is most cases is not refundable. So you end up losing money, in case your application is rejected. With the stiff competition amongst banks, you can look around for favourable loan terms. You may also have to pay prepayment penalty, if you decide to pay off the loan before its term is over. The advantage of loan is its comparatively low rate of interest.
Both credit card and personal loan do have their pros and cons. Which one you should go for? Well, it will depend on your circumstances. If you are need of immediate loan for very short period, then credit card is right for you. Otherwise personal loan is good for you, provided you have good credit record.