Personal Loan is not secured by any hard title property or marketable security. In case of non-payment, the bank will pursue the borrower including initiating a legal proceeding, but the bank has no secondary recourse to recover the fund. The high interest is charged to compensate for the high risk of default. Secondly, the loan amount is much smaller than other consumer loans such as mortgage. The high interest rates compensate for the high cost of servicing.
To the customers, Personal Loan is less costly to apply. There is no property valuation, fire insurance, or lawyer fee to pay. Moreover, they can settle the loan anytime without incurring penalty. The savings from these can compensate for the high interest rate.
