9 Personal Loan Myths and the Truth You Should Know

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A personal loan is an unsecured loan, which can be used for any purpose – from house remodeling to debt consolidating. Although personal loans are a popular financial product, certain personal loan myths circulating around make them look like debt traps. These misconceptions have infiltrated our brains so much so that most people believe them without even cross-checking the facts.

Let’s take a look at some of the most popular misconceptions about personal loans:

Myth #1: Only banks offer personal loans.

All banks offer personal loans, but they are not the only ones. Many fintech companies, NBFCs, and other financial institutions offer convenient and affordable personal loans.

Myth #2: All borrowers get the same interest rate.

Different lenders offer different personal loan interest rates to their borrowers. The interest rate depends on the borrower’s creditworthiness and repayment capacity. The more creditworthy the profile is, the lower is the interest rate offered and vice versa. If you want to get a personal loan at a low-interest rate, ensure that you improve your credit score.

Myth #3: Low credit score leads to loan rejection.

Although the credit score is an important factor that is considered when determining personal loan eligibility, it is not the only factor that impacts your chances of loan approval. A credit score of 750 or above is considered good to get a personal loan approved at ideal loan terms. If your credit score is low, other factors such as your employer, your income, etc., are taken into consideration; however, you might get a loan at a high-interest rate.

Myth #4: Personal loans do not help in case of emergencies.

A financial emergency is a situation that involves unexpected expenses and needs quick action. Personal loans are unsecured loans, which take less processing time because of which, these loans can be disbursed within 24 hours, allowing you to meet your urgent needs on time.

Myth #5: Personal loans don’t provide any tax benefits.

Although personal loans can be used for any purpose, the tax benefits are offered only under certain circumstances. When you use the personal loan to invest in the business, buy an asset, or construct a home, then you are liable for tax benefits.

Myth #6: Personal loan is offered only to salaried individuals.

Salaried as well as self-employed professionals like CA, doctors can apply for a personal loan. However, their loan approval will depend on the credit score and ITR.

Myth #7: It’s difficult to repay the personal loan.

Before you get a personal loan, you can use an EMI calculator to check what EMI you would be paying every month towards your loan. You can choose your EMIs according to your financial capacity.

Myth #8: Multiple loan applications improve your chances of loan approval.

Definitely, not. Too many loan applications, in fact, ruin your chances of loan approval. Each time you make an application, the lender makes a hard enquiry into your credit report. Too many of such hard enquires in a short period of time negatively impact your credit score, making it tougher for you to get a personal loan approved.

Myth #9: Personal loans have a lengthy processing time.

In fact, a personal loan can be disbursed within 24 hours or in a couple of days. If you meet the eligibility criteria and if the lenders find you creditworthy, a personal loan is the fastest way to get a loan.

Author Bio:

Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at [email protected].