Disadvantages of a personal loan
Updated: Jun 7, 2020
A personal loan is an agreement between a borrower and a lender. The lender provides a sum of money upfront to the borrower and it is agreed by what date the sum of money will be repaid. Usually loans are repaid in instalments (every month) and the borrower will be charged interest on the sum of money left to repay (which means they end of repaying more than the sum of money that they borrowed). Loans are commonly provided by banks, building societies and credit unions to help people buy expensive items such as a new car or a new house.
However, there can be disadvantages to having a personal loan:
Sometimes people cannot afford to make the repayments they agreed to and they face fines/penalties every time this happens which means pay the agreed repayments plus the fines/penalties can make it very difficult for the person to pay back the loan.
If a person cannot repay the loan, this will affect their credit rating which means they may not be able to borrow money in the future.
Sometimes people turn to loan sharks to borrow money to help pay off their loan. However, this just puts the person into further debt.