Personal loans are a great way for individuals to fund any expenses on any emergency. Unlike home loans and auto loans, the amount availed through a personal loan can be used for any purpose. Another point of distinction between personal loans and other types of loans is that they are unsecured loans. This means that the borrower need not place any of his/her assets as collateral for the amount borrowed.
For a new Person if he/she want to avail any personal loan, they think that it’s difficult, and there are so many myths and a common misconception about personal Loans. Before availing this loan, I too believed these myths. However, I have realized that those are only a misconception and not real.
Here are the Top 10 misconception I am going list. Hope it will help you guys
Myth#1 Bank Is The Only Source
When is comes to money lending we always think about Banks are the only financial institutions that offer personal loans. Yes agree, it used to be like this earlier. However Now there are lots of alternative options like Non-Banking Financial Companies (NBFC), Peer-2-Peer lending, Registered Credit Societies, and other digital lenders with competitive interest rates and flexible eligibility criteria.
So better to explore all the possible alternatives and compare their pros and cons and check any hidden obligations as many a time lender will not tell a few hidden obligations upfront. So, it’s our duty to check all these on a safer side to avoid any regret in the future..
Myth #2 Low credit score leads to loan rejection
Many borrowers assume that a low credit score would result in the loan application being rejected. While an individual’s credit score is a factor that is taken into consideration when evaluating their loan eligibility, there are other factors that take precedence over a low credit score.
Financial institutions factor in aspects such as the borrower’s income and their repayment capacity in combination with the individual’s credit score. However, it should be noted that the rate of interest charged for individuals with a low credit score tends to be higher than those individuals who have a higher credit score.
Myth #3 Personal Loan If Taken Affects My Credit Score
This was the myth that I personally believed in for many years. However, when I came to know that this is a simple myth and does not serve any purpose. Your Credit Score does not get affected if you take a Personal Loan.
In fact, It will increase your credit score, if you repay your installment of personal loan on time or well ahead of time, increases your chances for future loan approval. The only thing you need to keep in mind that you don’t get into a debt trap by taking many personal loans without any valid reason.
Myth #4 Personal Loans Have a High Rate Of Interest
A common misconception is that the rate of interest on personal loans is generally very high. However, this is not always the case. In many instances, financial institutions and other lenders set interest rates based on the individual’s repayment capacity and credit score.
Individuals who have a low repayment capacity are generally provided loans at higher interest rates. Borrowers with a good credit score and good track record of repayments can get a personal loan with an interest rate as low as 10.99% p.a.
Myth #5 One cannot avail PL if he/she already has an existing loan
A number of loan applicants believe that they cannot avail a personal loan if they are already repaying an existing loan. This is not true and the same criteria is applied to sanctioning a second personal loan as is for the first one.
Financial institutions accept loan applications based on the borrower’s repayment capacity and their current income. The loan application is either accepted or rejected based on the applicant’s capacity to repay the loan after taking into consideration existing EMI payments. Make sure that you don’t make any EMI default.
These are my 10 misconception which I busted in my financial freedom journey. Hope you must have got dome idea by now. Do share your valuable thoughts or feedback by adding your experience with these personal loans.
Myth #6 Only salaried individuals can apply for personal loans
It is a common belief that only those individuals who have a steady flow of income are eligible to apply for personal loans. This is another myth about how personal loan applications are evaluated. For salaried individuals, having their loan application accepted is easier since there is a regular inflow of funds. However, individuals who are self-employed can also avail personal loans and the approval of the loan amount is based on the individual’s credit history. However, the amount that is sanctioned might vary.
Myth #7 Personal loans do not have a prepayment option
Another myth about personal loans is that the borrower cannot repay the loan amount before the end of the loan tenure. The reason why most individuals believe this is because personal loans tend to have a much shorter tenure than other types of loans. However, borrowers can repay the loan amount before the end of the loan tenure. Most banks and financial institutions tend to have a minimum tenure for which individuals have to make the monthly EMI payments. Following the completion of the minimum tenure, borrowers can foreclose their loan after paying a certain amount as the foreclosure fee.
Myth #8 Processing time
A number of borrowers believe that the processing time for most loan applications is very long and requires a lot of documentation. This may have been true several years ago, but now, applying for a loan and having the amount disbursed to your account can be done within 48 hours. Additionally, a number of banks have the instant loan option that disburses the loan amount to the borrower’s account within minutes of submitting the application. Furthermore, a number of financial institutions are moving towards a paperless process that does not require the applicant to submit physical copies of any of their documents.
These are my 10 misconception which I busted in my financial freedom journey. Hope you must have got some idea by now. Do share your valuable thoughts or feedback by adding your experience with these personal loans.
But always remember that don’t take any type loans over your capacity, Just you are getting easy money, doesn’t mean that you should take loans. Debt trap is like a rabbit’s hole and once you enter it’s difficult to come out of this trap.
Please check this for “How to come from Debt trap within short or No time”