Why is the Rate of Interest of a Personal Loan high?

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Rate of Interest for personal loan

Rate of Interest for personal loan

A personal loan usually comes with so many benefits.  In a personal loan, we borrow money from banks or non-banking financial companies at some rates of interest. We have to return the principal amount with the rate of interest within the given tenure. Personal loans are easily available nowadays in every corner of the country. There are so many non-banking financial organizations that provide you a personal loan. Besides all these, you can apply for a personal loan online. There are no charges to fill the form online. Bank will check your eligibility. If you are eligible, the bank will provide you a personal loan very easily. There is one important thing to note that the rates of interest in case of a personal loan are quite high. Let us see the reasons behind this.

High Rates of Interest

A personal loan is an unsecured loan; it means that they don’t need any collateral. Collateral is some property that is pledged to the bank as a security. If someone doesn’t return the loan amount the bank can recover this amount of loan from this property, this happens in a secured loan. Since a personal loan is an unsecured loan so nothing like that happens in a personal loan. Bank usually gives you a personal loan on the basis of faith and a good credit history. Unfortunately, if the loan gets default means the borrower doesn’t return the loan, the bank will not have anything to recover. There is a great risk to the lender. This is the reason that for Rate of Interest for personal loan being high. However, if a borrower doesn’t pay his loan his credit history will get affected badly. So it is wise to pay your loans on time.  

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