Personal loans are a great financial tool to fund any of your expenses. Be it renovating your home, purchasing an expensive gadget or funding some medical emergency, a personal loan is always there to help you out with your financial crunches. Moreover, unlike home loans and auto loans, the amount availed through a personal loan can be used without any end-use restriction. Another point which makes availing personal loans even more joyful is that personal loans are unsecured in nature. However, apart from these many plus points, several myths are persisting in the market which makes borrowers think twice before availing the loan.
So, in this blog, we will be busting all of the personal loan related myths which one should never believe of.
Personal loans have a high rate of interest
Most of the people believe that the interest rate charged against a personal loan is very high. However, this isn’t completely true. Personal loans are unsecured and the interest rates are comparatively higher than the secured loans but this doesn’t mean it is very high and cannot be availed by a common man. The interest rate for a personal loan ranges from 10 to 16% and generally depends on the profile, repayment capacity and creditworthiness of the applicant. An applicant with a good repayment history and good repayment capacity may get approved for it at the lowest rate possible.
For example- Mr Rohan and Mr Shetty applied for a personal loan at the same time. MR. Shetty holds a good repayment history with a decent CIBIL score and a good repayment capacity. However, Mr Rohan has a credit score of 550 and has two ongoing loans. Both get approved for the personal loan but at different interest rates. For Mr Shetty, the loan is approved at 10.05% whereas for Mr Rohan it is approved at 13% per annum.
One should avail personal loans only from banks
Some people believe that you should always take a personal loan from a bank. Well, the truth is personal loans are offered by all the banks, NBFCs like Bajaj Finserv, Tata Capital, HDB Financial Services and digital lenders like Finance Buddha. And it is not compulsory to avail of a personal loan only from banks. The fact is NBFCs and digital lenders have much-simplified eligibility and processing criteria than nationalized banks. And when a bank rejects your personal loan application, you can apply with any of the NBFCs and digital lenders for a personal loan as their eligibility criteria are a bit flexible and relaxed with them.
Only salaried individuals can avail a personal loan
One of the common myths about a personal loan is that only salaried professionals with a fixed income can avail a personal loan. However, this is not true and Self-employed individuals/professionals can also apply and get approved for a personal loan based on their credit score and ITR before sanctioning the loan.
Low credit score leads to loan rejection
Your credit score is one of the most important factors which impacts your loan approval. It basically represents the repayment history of your previous borrowings and impacts your loan approval chances.
A myth that commonly persists with a personal loan is that- low credit score leads to the rejection of your personal loan application. However, this isn’t completely true, and a bank that has strict eligibility criteria and offers no flexibility can reject your personal loan application with a low CIBIL score. But there are chances that your loan application even with low CIBIL can get approved with NBFCs and digital lenders. But this may charge you a comparatively higher rate.
Personal loans do not have a prepayment option
One of the myths about personal loans is that unlike home loans and car loans the borrowers cannot repay the loan amount before the tenure. In other words, they believe personal loans do not allow prepayments as they have a much shorter tenure than other types of loans. However, the truth is borrowers can repay the loan amount before the end of the loan tenure as any other loan. With most lenders, there is a lock-in period of 12 to 24 months and after that one is free to repay the outstanding loan amount anytime he/she wants. Repaying the full amount before the lock-in period may charge you with some penalty amount.
Longer Processing time
Some borrowers believe that the processing time for a personal loan is very long with a long documentation process. Well, this was true with traditional personal loans several years ago. But now with the involvement of advanced technology in the banking sector applying for a loan and having the amount disbursed to your account is done within a few hours. Moreover, several banks offer instant loan facilities that disburse the loan amount within minutes of applying. The process is completely online which saves time consumption and makes the process hassle-free for borrowers.
These were some of the myths about the personal loan which one may come across. However, these are complete myths and one should not believe these before checking the facts.