The rising consumer spends and easy accessibility to credit are leading individuals to avail multiple credit facilities for meeting their lifestyle aspirations. Due to this, many consumers are increasingly being ladened with high-interest debt, leaving them with inadequate surpluses for making investments to meet their crucial financial goals. Consumers struggling with multiple debts can decrease their debt burden and overall interest cost by consolidating those debts under a single loan availed at a lower interest rate. While there are multiple loan options to consolidate outstanding dues, borrowers usually opt for personal loans because of these reasons:
Considerable savings in terms of overall interest costs
Personal loan interest rates are usually offered at 10.49% p.a. with some public sector banks offering these loans at lower interest rates. Being unsecured, the interest rates offered on personal loans are higher than many other secured loan options. However, it is also much lower than the credit card finance charges, which are usually 40% p.a. or above. For instance, the interest rates offered on SBI Personal Loan is 11.05% p.a. onwards, which is significantly lower than the finance charges levied by various credit card issuers.
Thus, if you are struggling to manage debt on your multiple credit cards or loans availed at higher interest rates, then consolidating them using personal loans can prove to be a smart move for reducing your overall interest cost burden. As the repayment tenures for personal loans usually range between 1 and 5 years, availing personal loans to pay-off credit card dues would also help reduce your monthly repayment burden.
Quicker loan processing and disbursal
In personal loans, the time taken to disburse the loan amount is faster as compared to most of its secured loan alternatives. This is because lenders offering secured loans require more time in performing due diligence on the pledged asset. Personal loans, on the other hand, are approved based on the applicants’ credit profiles. The integration of digital infrastructure in the lending process has also allowed many lenders to provide personal loans through online mode, consequently decreasing their turnaround time for loan processing.
Many banks and NBFCs also offer pre-approved personal loans to their select existing customers on the basis of their credit profiles. Such loan offers usually feature instant or same-day loan disbursals. As lenders offering these loans already have KYC details of their existing customers, applicants can easily avail the loans without any further need for documentation. The time saved on document verification further speeds up the loan process, thereby, allowing lenders to disburse the loan amount within a few minutes of receiving the loan application.
No need for security/collateral
Personal loan’s unsecured nature is yet another reason why most existing borrowers choose this credit option for consolidating their debts. Secured loans like loan against property can also be used for consolidating debt; however, these loan options require borrowers to pledge their asset(s) as collateral/security, which the lender can auction to recoup its losses in case of default. However, borrowers opting for personal loans to consolidate their existing debt borrowers do not have to worry about losing their assets.
Requires less paperwork
Personal loans are not backed by any underlying asset and therefore, involve less paperwork. However, its alternatives such as loan against property and loan against securities have underlying assets as security/collateral and therefore, its required list of documents are more extensive than that of personal loans. Some of the common list of documents required by personal loan lenders includes proof of identity, address and income. Some lenders also offer personal loans without any documentation but usually to their select existing customers. In such loans, lenders already have the required KYC details of their customers, allowing them to skip the document collection and verification from their loan process and disburse the loan sooner than it usually would have.
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