You can use personal loans for almost anything when a global recession happens. Lenders may ask what you do with the money, but others will want to know if you can pay them back. Unlike mortgages, personal loans do not require collateral. The Insolvency Department Malaysia uncovered that almost 42% of Malaysians declared bankruptcy due to personal loans. Learn more about it below.
Benefits of personal loans for consumers
A personal loan can be a great source of quick short-term income during the global recession for the following pluses.
Receiving funds in a lump sum with repayment throughout the tenor
If you secure a personal loan with an interest rate lower than your debts, you’ll be able to save more money from interest immediately.
Often fast funding times – provided you have a good credit standing
Personal loans are an excellent way to borrow money in no time during the global recession, thanks to a quick approval process and payment period. However, you can only reap this benefit if you already have a strong credit history.
A usually lower interest rate than credit cards
Most personal loans come with an interest rate of around 8% per annum, compared to credit cards with a 15% yearly interest rate. Once you’ve demonstrated your punctuality, you’ll be eligible for lower interest rates.
Some people spend the money they obtain for diverse purposes, ranging from home renovation and medical bills to higher education funds. Others also pay their credit card debts or hold their weddings with borrowed cash.
Offers longer loan terms
Another advantage of personal loans is their extended payment tenure. The repayment terms can last from 2 to 10 years, perfect for the upcoming global recession.
Easier to manage
Since personal loans come with a fixed interest rate and a specified amount to be paid monthly, you’ll have an easier time budgeting your finances.
Drawbacks of personal loans
Not everyone may benefit from applying for personal loans as these disadvantages may mess up their planning.
Fees and penalties can be higher, driving up the cost of borrowing
Not all personal loans offer low-interest rates, especially when faced with an applicant with a poor credit score. In such situations, the lender may impose more costly fees and penalties.
Rates may fluctuate based on Bank Negara Malaysia’s Overnight Policy Rate (OPR)
Lending activities in Malaysia depend on the overnight policy rate to reflect the current situation and the money they have. A higher interest rate means you’ll have a more costly loan.
Stricter eligibility requirements
Loan providers don’t allow other people to sign a money-borrow agreement on behalf of your application. They’re called personal loans for a reason.
Additional monthly commitment
You will have more monthly obligations by taking a personal loan. Consequently, applying for more personal loans can accumulate arrears from borrowing more than the budget allows.
Increased debt load
Personal loans are just a short-term solution to address any arrears. If you don’t solve the psychological issues behind your poor purchase habits, the risk of overspending becomes more imminent.
Is it the right option for you?
Now that you know the pros and cons of engaging with a personal loan, you’ll be better equipped to decide if you need one or not.
As a consumer, financial literacy is vital to your continued success in your personal financing, and we’re here to help. Check out more content like this on our blog, if you’re interested in learning how financial literacy can benefit your personal financial status, regardless of where you are in life. Because, how would you derive a benefit without knowing the whole picture?