Why Availing Personal Loan is Better for Consolidating Your Debt?

Increased consumerism and easy credit availability are leading consumers towards availing multiple credit services to meet their discretionary expenditures. This has left many consumers burdened with high-interest debt and minimal-to-no amount to save or invest for achieving their key financial goals. Borrowers struggling with multiple debts can lessen their burden by consolidating them under a single loan availed at lower interest rates. Doing this will allow consumers to save on their overall interest cost. While there are multiple loan options for consolidating your multiple outstanding dues, personal loan is usually preferred due to these reasons:

Considerable interest cost savings

The interest rates offered on personal loans are usually 10.50% p.a. onwards, which is much lower than the credit card finance charges, which usually start from 40% p.a. Hence, those having outstanding balances on multiple credit cards should get personal loans to consolidate them. Doing this will reduce their overall interest cost. As personal loan tenures usually range between 1 and 5 years, using personal loan proceeds to repay your existing credit card debt would additionally reduce your monthly repayment burden.

Those having high-interest loans can also avail personal loans for debt consolidation if those loans were availed at much higher interest rates than the rate offered for personal loan. Besides lowering your interest cost, it will also eliminate their need for tracking multiple EMIs and their due dates.

Faster loan processing

Personal loans are processed faster than secured loans. In secured loans, verifying collateral may take lenders’ time. However, personal loans are approved primarily on the basis of the applicant’s credit profile. Moreover, the adoption of digital infrastructure in lending has allowed many lenders to offer personal loans online with an end-to-end digital onboarding process, thereby, reducing turnaround time for loan approval and disbursal.

Many lenders also offer pre-approved/pre-qualified personal loans to their select existing customers with instant or same-day disbursal. As such lenders already have the KYC details of their existing customers, pre-approved personal loans usually do not require further documentation. This allows lenders to disburse pre-approved/pre-qualified personal loans within a few minutes of making the loan application. For instance, HDFC Bank claims to provide its pre-approved customers with HDFC personal loan within 10 seconds of their making the loan application. For other personal loan applicants, the bank might take up to four business days to disburse the loan.

No need for collateral or security

A personal loan does not require any collateral/security; and therefore, most borrowers resort to this credit option for consolidating their debts. A secured loan, on the other hand, is backed by an asset, which the lender can seize and sell to recover losses in case of loan default. Such risks, however, are not involved in case of personal loans.

Minimal to zero paperwork

Personal loan alternatives like loan against property, loan against securities, etc. are secured credit options, which implies that they are backed by an asset pledged by the borrower as collateral as security. Therefore, the list of documents required for availing such loans is more extensive than the documents required for availing an unsecured loan like personal loan. Banks and NBFCs usually ask their personal loan applicants to submit documents proving their identity, address and income at the time of loan application.

Some banks and NBFCs offer personal loans with paperless documentation. In such loans, lenders might ask their applicants to upload the required documents online instead of physical paperwork.