A personal loan is also known as an unsecured loan. A personal loan does not require you to put up an asset as insurance against the loan. This option offers both pros and cons.

Pros of a personal loan

Even though you are legally bound to a contract with a personal loan, and should pay instalments in a timely manner, you cannot lose a house or car if something goes wrong. For instance, if you took out a personal loan, lost your job, and can no longer make payments for at least the near future, the institution lending you the money cannot make a claim on your home or car.

Paperwork is less
Generally, paperwork surrounding a personal loan is much less than paperwork for a secured loan. There’s no collateral to check, no extraneous steps necessary to get the loan approved.

You don’t have to divulge information
Unless you're running a terrorist operation, the institution lending you the money is not interested as much in what the money is for, than it is in whether you are able to make payments.

Personal loans are cheaper than using your credit card
Credit card interest could run up your monthly living costs a lot. This is not the case with a personal loan. Getting a personal loan to clear your credit card may even be a better alternative than paying off credit interest.

Cons of a personal loan

Higher risk for lenders
Since there is no collateral, the lender may perceive the deal as a higher risk than a home or car loan. This means that your credit profile is subject to scrutiny, which may not be the case if you put up some sort of collateral. If you’ve not been dotting your i’s and crossing your t’s, your application might be rejected.

Higher interest rates
Interest rates on personal loans can be enormously high. They can often be double that of a home loan. Here your credit profile plays an important role.

Remember
Be aware of the deal you accept. Personal loan interest rates vary from institution to institution. Make sure you read the fine print and understand the implications of taking out a personal loan. Check service charges, foreclosure charges and make sure you know of any hidden charges that may apply to your personal loan deal.