A personal loan is the foremost option that springs to mind whenever we are in a financial crisis. It is an excellent option to cover any personal or household expenses. Given its many benefits, many individuals are still hesitant to apply for personal loans because of several misconceptions about this financing product. In this article, we will try to dispel some common personal loan myths.
1st Myth: Offered Only by Banks
Do you really believe this myth in this day and age of digitalisation? If yes, get rid of it straight away. Personal loans are available from a variety of financial institutions, including banks and non-banking financial companies (NBFCs). In addition to that, several fintech companies offer instant personal loans. So, the next time you intend to apply for a personal loan, keep in mind that you have a lot of options to select from.
2nd Myth: Long Approval Time
Personal loans are also widely regarded as emergency loans. Many people are hesitant to apply for this loan since a friend told them that the approval process takes a long time. Debunking this myth, the fact is; if you have a steady income and a good credit history, the lender will offer instant approval within 5 minutes. In addition to that, the loan disbursement time is also minimal, and the turnaround time for fund disbursement is less than 48 hours.
3rd Myth: You Cannot Apply for a Personal Loan if You are Already Burdened with Any Loan
Are you in desperate need of money but hesitant to apply for a loan because your credit report displays an outstanding balance on an existing debt? If yes, set aside your misconception and quickly apply for a personal loan. Regardless of how many debts you have, if your debt-to-income is not more than 40%, and you have never defaulted on your previous or existing debts, you can easily acquire this loan.
4th Myth: You will require Collateral
Are you hesitant to apply for a personal loan because you do not have any assets to pledge as security? If that is the case, you are falling for one of the most prevalent personal loan industry misconceptions. Personal loans are unsecured loans and to get this loan, you will require stable employment, income, and good credit score numbers. The minimum income required to apply for this loan is Rs 15,000 a month.
5th Myth: You Cannot Prepay your Loan
So, you have earned a sizable bonus from your employer and want to put it towards paying down your personal loan debt. What’s keeping you from moving forward? Has someone whispered in your ear that prepayment on a personal loan is not permitted? Well, trust us, this is another common and widespread industry misconception.
Once you successfully complete the first year of repayment, you can easily foreclose or prepay your loan. However, bear in mind that both partial prepayment and foreclosure are subject to a small penalty that is pre-specified in your loan agreement.
6th Myth: Only Salaried Individuals can Apply for a Personal Loan
We have a question for people spreading this rumour: Can’t businesses get trapped in the financial crisis? And, if they do, how will they deal with the situation? Is it advisable for them to seek business financing to meet their personal needs? The answer is a big no. Personal loans are accessible to both salaried and self-employed. However, the eligibility criteria, as well as the documentation process, for both are slightly different from one another.
7th Myth: Poor Credit Score Leads to Rejection
Many individuals circulate rumours that if you have a bad credit score, the lender will reject your application. This is somehow true not only for personal loans but also for other types of loans. Before you make a decision and start believing this myth blindly, there is a catch.
Only after you have defaulted on previous debts and skipped multiple EMIs will the implications of an average credit score become apparent. If you are a first-time borrower with a steady income, the lender will easily approve your loan request.
8th Myth: Personal Loan comes with a High Rate of Interest
Suppose you earn a few lakhs in a month and possess a strong credit score; do you think the lender will still charge you with a high-interest rate? The answer is no. The rate of interest depends entirely on your profile and a few other parameters. Some of the common factors that influence your personal loan interest rate are outlined below.
- Credit history and score
- Employment status and income
- Debt-to-income ratio
- Age
- Employer’s status
So, the next time you apply for this loan and are concerned about the interest rate, instead of believing any myths, review the above parameters.
Bottom Line
Personal loans, when used wisely, can be a viable solution to your money woes. All you have to do is disregard the misconceptions that accompany them and base your judgement on the truth. In case you still have any concerns, connect with your preferred lender’s representative.