How is Personal Loan from Bank better than the Loan from Money Lenders?

Human Beings have a limited salary but unlimited wants and desires. The more a person gets the more he demands. As a result, most of us end up borrowing money from somewhere or the other.

When a child goes to school, he sees his friend buying a chips packet and coke for lunch. Even if the child has brought his lunch, he has an urge to buy food from outside. So, he borrows money from his friend with a promise to return it the next day. Usually, people say that in friendship it is not important who pays. So, his friend asks him not to return the money, as they are ‘Best Friends’. But, his friend expects him to buy food for him some time later and make up for it. Such a desire if not fulfilled usually brings a thin line or a feeling of hatred for the other person. The friend thinks that every time ‘I only buy food for my friend, whereas he never buys food for me, nor does he repay the money to me.’ In his mode of hatred, he forgets that he only asked his friend to not return the money, when he was willing to return it. 

This small and innocent story gives us an idea of the impact of loan on a person’s life. Loan brings with it a large number of unsaid and unspoken rules that are bound to be understood by both the parties similarly. Any failure on this front can lead to dire and fatalistic consequences.

The most common type of loan is the Personal Loan. Home Loans or Car Loans are taken once and then their need arises only after a minimum period of 6 months in most of the cases. But, Personal Loans are the loans that can fulfill your day-to-day requirements. They are available easily without any collateral. They can also be used to pay out other loans. They are usually taken by the people whose income is less than their expenses. So, to fulfill their basic necessities they take easy loans. But, personal loan is also of various types.

You can either take a loan from an established bank or from private money lenders. There are pros and cons to everything in this world. So, in some cases banks’ loan is better while in others it is profitable to go for money lender’s loan.

As per my personal opinion, as a Commerce Student, it is better to go for loans from the banks. I can prove my point by using the following facts:-

1. Banks are established Entities that are recognized by the Central Government. There working is constantly monitored by the Reserve Bank of India, that makes the rules and regulations regarding the interest rates and all other bank rates. It is not compulsory, especially in small villages, for money lenders to get themselves registered under the Money Lenders Act.
2. The interest rate is fixed in case of banks and complete information about the loan is provided to the borrowers. This does not happen in case of the money lender. He may come up with whatever rate of interest he wants and there is no one to stop him.
3. There is no collateral required to take a Personal Loan from a bank, but the money lenders can demand collateral as per their wish.
4. All these issues occur because the loan that is provided by the bank follows a certain set of documentation. Though this documentation can be tiresome for the borrowers but it is beneficial in case of any issues in terms of the repayment of the loan. Moneylenders in villages can even give loans without any documentation, as the people who take loans are poor, illiterate farmers.
5. But, as there are no documents in place to prove the facts, the moneylender can accuse the borrowers of not paying the installment, even though the borrower has paid it. He can also charge him by quoting a very high principal amount, when the borrower had taken an amount much less than the quoted amount.
6. Moneylenders harass the borrowers by threatening them to overtake all their land or kidnap the females of their family and use them as collateral. These practices, though sound to be very cheap, are very much prevalent in the Indian villages.
7. Many villagers have ended up giving up their life to escape from the shameless moneylenders. They give you money in return for your self-respect and can eat up the savings of your life, in the name of interests.
8. Such farmers cannot even go to courts to solve such disputes as there are no documents to prove the farmer’s point of view.
9. Such farmers may also end up working as slaves in the house of the moneylenders, because they are threatened by him to be killed or getting the women in his family abused.
10. Even though our Union Minister declared in 2008, that the farmers need not repay the loans taken from illegal moneylenders, but still these practices are prevalent in most of the villages in India.

The fact behind all the government rules, policies and regulations in India is that, there is corruption at every level of governance. Even if there are Government officials to protect the farmers from such practices, there is no one to guarantee that they work sincerely. They take bribe from the huge moneylenders and then sit and enjoy on the poor farmers’ money. There is no one to see that the work is being executed as per the government’s plans. Even if an officer comes to review their working, he goes up with a pocket filled with green notes, and gives a clean chit to the bloody police officials who are supposed to work as government servants but they work as dogs for the moneylender.

Banks ensure proper working of their loan department as they stand the risk of getting closed down by the Reserve Bank of India. The surveillance by the Reserve Bank is not done bureaucratically. Though the interest rates are higher on personal loans as compared to other loans, but it is essential as there is no collateral for such loans from banks. Personal Loan is an unsecured loan.

So, I hope you’ve understood the difference between the two kinds of borrowers and the benefits of taking loans from an established bank. So, make the right choice! Don’t fall in the moneylenders trap. Happy Saving! You’ll actually save your respect, money and even your life if you borrow money from banks rather than moneylenders.