Personal loans enable you to fulfill your dreams and aspirations at present and pay off the dues in small instalments in future. It is a great option for instant funds, especially for those who are looking for immediate financial assistance. This loan comes with no restriction on the usage of the amount; for example, you can use the personal loan money for buying a mobile phone, going on vacations, planning a wedding and much more.
As a personal loan is an unsecured loan, it comes at a higher interest rate, and if you are planning to take this loan, then you must cross-check whether you would be able to repay it or not. In case of failure of repayment, your credit score will be affected, which can eventually impact your further loan applications. Hence, it’s always advisable that one must thoroughly assess the need and based on it, must decide whether he/she wants to go ahead with a personal loan or not.
Being a popular loan option, the personal loan also has some myth associated with it. In this blog, we will be highlighting some of the popular myths associated with it and busting it.
10 Popular Myths about a Personal Loan
Lower credit score means rejection of loan-
Yes, this one of the popular myths associated with a personal loan. People believe that if the applicant has a low credit score, the loan application stands rejected. But, the fact of the matter is that the bank may approve your loan application and grant you a personal loan, but that will come at a higher interest rate. While checking the eligibility criteria of an applicant, the bank and the financial institution, tend to take into account the income of the borrower along with repayment capacity and credit score while approving the loan.
Only Banks give Personal Loan-
This is also one of the misconceptions prevailing around. Many a time, the bank may reject your loan application, but here comes the role of digital lenders and NBFCs where you can apply personal loan online. But, again, you must match the eligibility criteria of the lender and check the interest rate. Sometimes, the interest rate offered by NBFCs is on a higher side. So, apply for a loan, only if you feel that you would be able to repay it.
Credit card is cheaper –
One of the myths surrounding personal loan is that they are expensive than a credit card. But, the fact is that the credit card is not cheaper. The interest rate of credit card ranges between 18% to 48 per year, and personal loan is far lesser than that. So, if you are still wondering whether to choose credit card or personal loan, then probably you should be going ahead with a personal loan. The interest rate asked is far lesser than that in a credit card.
Personal loan always comes at a higher interest rate-
Many people who are scouring options for personal loan believe that it comes at a high-interest rate. This is always the case, many a time, banks and NBFCs offering personal loan takes into consideration the income, repayment capacity and credit score into account to decide the interest rate which can sometimes be as low as 10.99%. However, if you have a low credit score and lower-income, then you will be entitled to a higher interest rate. So, it is always advisable to check your credit score and income status before applying for a personal loan.
You cannot get a personal loan if you are repaying the existing loan-
There is a popular myth surrounding personal loan and that is, if the applicant is already paying some loan, then they cannot apply for a personal loan. This is not true. The approval parameters remain the same for a personal loan as that of the first loan. The loan approval or denial depends on the income and repayment capacity of the individual and not whether they have an existing loan or not.
Only salaried professional can apply personal loan online and get it-
This is another belief surrounding the people, but the reality is that one must have a steady flow of income to apply for a personal loan online and getting it approved. As mentioned above, banks and NBFCs take into consideration the income and the repayment capacity into consideration before approving the personal loan. So, any individual meeting these two parameters would be able to get a personal loan.
There is no prepayment option-
One of the myths surrounding personal loan is that there is no prepayment option. But this is not true. One of the reasons to believe so is because personal loan tenure is very short. But banks and NBFCs do allow you to prepay the loan, but there are some charges associated with it, and you also need to fullfill the lock-in period specified by the bank. Hence, it’s always advisable to cross-check the prepayment charges asked by the bank before applying for a personal loan.
Only Indians can get a personal loan-
A popular myth surrounding personal loan is that only Indians can get a personal loan. Well, the fact is that the banks and NBFCs have leveraged the loan application even to the NRIs. They need to meet the eligibility parameter specified by the bank. Once you have matched the parameters, banks and NBFCs will approve the loan application. Banks like SBI have special provisions of personal loan for NRIs.
It takes time for the personal loan application to be processed-
Well, this might be true a few years back, but, now the working of banks has simplified, they have become more customer-centric. There are many banks and NBFCs which approve personal loan within 48 hours, and you can get instant access to the amount. Hence, this is a myth that personal loan application takes time for approval and disbursal.
The online application is tedious-
All the banks and NBFCs have now switched to the digital medium of banking services. So has the loan application process. Online mode is far more time saving and easy than the offline method. You can easily apply by going to the website of the desired bank of NBFC and apply.
It can be concluded that personal loan is a good choice, but you must assess whether you need to apply for a loan and compare the interest rate before applying for a loan.