One kind of
credit facility that banks, credit unions, microfinance organisations, and
online lenders offer to people for their own use is a personal loan. Personal
loans are often unsecured, which means they don't need collateral, in contrast
to company or home loans. Over a certain time period, borrowers pay back the
loan in fixed monthly installments plus interest.
Types of
Personal Loans
Secured personal loans: need
property or an automobile as security.
Unsecured personal loans carry
higher interest rates but don't demand collateral.
Pay loans are paid back by pay
deductions and are given to salaried employees.
Short-term loans for immediate
financial requirements are known as emergency loans.
Loans for debt consolidation:
These loans combine several debts into one to make managing them easier.
Importance
of Personal Loans
A.
Importance in Ghana
Financial Flexibility:
Ghanaians can better handle pressing costs like rent, medical bills,
school fees, and startup capital with the aid of personal loans.
Assistance for the Unbanked: A
large number of digital lenders and microfinance organisations (such as
Fido and MTN Qwikloan) provide loans to people without access to
traditional banking facilities.
Encourages Entrepreneurship:
Personal loans are used by independent contractors and small business
owners to launch or grow their enterprises.
Education Financing: Some
people take out loans to cover the cost of professional courses,
vocational training, or higher education.
Real estate and home
improvement: A lot of people buy land or restore homes using personal
loans.
Growth of Digital Lending:
Personal loans are now more easily accessible through mobile money
platforms thanks to the emergence of fintech businesses in Ghana.
B.
Importance of Personal Loans Worldwide
Emergency Financial
Assistance: Personal loans are used by a large number of people worldwide
to cover unforeseen costs such as home repairs and medical emergencies.
Debt management: People can
manage several debts with a single, easier-to-handle payment by taking out
debt consolidation loans.
Credit Score Building: In
developed nations, taking and repaying a personal loan on time helps
enhance credit ratings (e.g., FICO Score in the US).
Economic Growth: By increasing
consumer spending, personal loans stimulate the economy and create jobs.
Online Lending Boom: A number
of international fintech companies, such as SoFi in the US and Monzo in
the UK, make it simple to obtain personal loans with little documentation.
Impact of Inflation and
Interest Rates: As a result of rising global inflation, many nations'
central banks have raised interest rates, which has increased the cost of
personal borrowing.
Conclusion
In terms of
financial inclusion, economic growth, and personal finance, personal loans are
essential. Even while they offer opportunities and financial comfort, borrowers
must evaluate their capacity to repay in order to stay out of debt traps. The
future of personal loans is being shaped in Ghana and around the world by the
growth of digital lending and more stringent credit laws.
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