Personal loans can be a great financial alternative to fund home renovation, gadget purchase, medical emergency, or any other expenses. There is no restriction on the end-use of the personal loan amount. These loans are unsecured in nature, so they do not require any collateral or security. However, despite being so advantageous and popular, there are some myths associated with personal loans.
Here we are busting all those myths related to personal loan:
- Personal loans should be availed only from banks
There is a misconception that one should always get a personal loan from a bank. The truth is personal loans are not only offered by banks but also by NBFCs and digital lenders. It is not mandatory to avail of a personal loan from banks. In fact, many NBFCs and digital lending platforms have more simplified eligibility and processing than reputed banks. Also, if a bank rejects your personal loan application, NBFCs and digital lenders can be helpful as their eligibility criteria are more flexible and relaxed.
- Personal loans come with a high interest rate
Most people think that personal loan interest rates are extremely high. Being unsecured in nature, their rates may be higher than the secured loans. However, their rates are still affordable and can be availed by a common man. Currently, interest rates for personal loans start from as low as 8.45% p.a., depending on the borrower’s profile, creditworthiness, and repayment capacity. Applicants with a good credit score and repayment capacity may get the lowest rate on a personal loan.
- Personal loans can be availed only by salaried individuals
It is one of the common myths that only salaried individuals can avail of a personal loan. This is not true because self-employed professionals, as well as non-professionals, can also apply for a personal loan based on their ITR, income, and credit score.
- You need an excellent credit score for personal loan approval
It is true that your credit score is an important factor and impacts your loan approval as it represents your repayment history for previous loans. Having an excellent credit score (750 or above) can increase your chances of approval. However, a low credit score doesn’t always lead to your personal loan rejection. Although banks have strict eligibility criteria and require a high CIBIL score, there are other lenders (NBFCs and digital lenders) that offer personal loan to people with low credit scores as well.
- You cannot prepay a personal loan
Many people believe the myth that being a short tenure loan, personal loans cannot be prepaid before the tenure. The truth is, like any other loan, you can repay the loan amount before your personal loan’s tenure ends. Most lenders have a lock-in period of 12 to 24 months, after which you can prepay the outstanding amount of your personal loan whenever you wish to. You can make the prepayment in part or full with some penalty charges.
- Personal loans have a longer processing time
This is another common myth associated with a personal loan that it comes with a very long processing time and documentation process. Although this was true for traditional personal loans, now, with the use of advanced technology, you can avail of a personal loan within a few minutes. Many banks and digital lenders offer instant loans with quick disbursement time as the entire process is completely online and fast.
