Advantages and Disadvantages of Loan System

Taking a loan is nothing new. Countless (Many) businesses have been set up on bank loans. Loan means, “borrowing money for a purpose.” In this Hi-Fi world, the wants of the people are unlimited. Man is not satisfied with what he has. All the time, he is thinking of material wealth and in this race, he finds himself short of money every time. The person who has low income tries to borrow money from some agency, banks and other financial institutions, which are ready to lend money to them on easy terms & conditions.

However, there are both advantages and disadvantages to taking a bank loan, depending on the borrower’s financial health. This is why it is necessary to understand the advantages and disadvantages of bank loans before taking to them.

Advantages of Loan System:

→ Easy availability:

Leading institutions like banks are ready to lend money to the person who wants money on easy terms and conditions. Therefore, the borrowers can easily get money from them.

→ Uses:

A borrower can use a bank loan for a number of reasons—either for setting up a business, or to buy home or to go on a holiday. In fact, a bank loan is a financial package, which helps you in difficult time or set up business or invests in stocks. Considering it is a loan, it means that eventually you will have to pay the bank back within a specified time at a pre-determined rate of interest.

→ Speed:

If the borrower has all the appropriate documentation, any bank can process his application within an hour.

Easy to return money:

It is often very easyto pay the money back. Since we do not have o ay up the entire amount at a time. we ge he facility of easy instalments and we can make our dreams come true.

→ Loand through credit card or overdraft:

Personal loans are often more popular than other sources of finance such as credit cards and overdrafts. The loan through credit cards hel us to fulfil our desire for shopping.

Disadvantages of Loan System:

→ Borrowers over-borrow:

People sometimes over borrow money and are caught in their own debt. Therefore, before taking loan, the amount which we wants should be considered in advance.

→ Prepayment penalty:

Often, loans come with a prepayment penalty, which prevents the borrower from paying the loan earlier than the specified date without incurring any extra costs.
→ Restrictions:

Banks impose a number of restrictions on the transaction. This includes having a good credit history before applying for a loan, and there are often restrictions about how the money should be used.

Thus, we can say that loan system may be blessing or a curse. It depends on the person how he manages the installments of the loan. Thus, a man should think very wisely before taking a loan.