In times of emergency, Indians usually turn to simple credit options like credit card or personal loans. Personal loans occupy a major portion of the lending market. Now with digital lending, instant personal loans have become quite popular.
Yet, there are many myths surrounding personal loans making it the evil twin of credit cards. Personal loans are also unsecured loans, and they do offer high loan amounts based on your income. So we thought of demystifying the 10 most common myths around personal loans and help you make an informed decision the next time you take a loan.
1. Personal Loan Are Expensive
They are actually very cheap compared to credit cards. The interest rate on personal loans ranges between 10-18% per annum, while credit cards charge about 40-50% per annum. Personal loan interest rates have reduced considerably over the past few years owing to high demand. And these days, there are many online instant personal loan apps that offer day wise or monthly interest rates making personal loans more accessible.
2. Personal Loans Have A Long Processing Time
This doesn’t hold good for any loan these days. Even home loans are processed in less than a week! Personal loans are now being processed and sanctioned within hours. With the advent of digital banking systems, most financial institutions already hold most of your data to make a decision on your loan. Instant loan apps process your loan within minutes and the funds are in your bank account in less than 30 minutes.
3. Personal Loan Eligibility Criteria Is A Tedious Process
That has changed now. Personal loans are processed primarily based on your credit score and hence take less than 48 hours to be processed. Also, most personal loans are now processed online and you don’t have to fill a long application form or submit photocopies of 100 different documents. They will, at the max, need your Aadhaar copy and PAN copy, and you are set. The loan will be processed and the amount will be in your account within minutes.
Check your eligibility for a personal loan in seconds!
4. Personal Loans Are Available Only To Salaried Individuals
Personal loans are available as long as you have a stable income. Whether you are salaried or self-employed, you can provide your bank account statement to prove that you have a regular income to repay the loan.
5. Personal Loans Are Available Only Through Banks
Personal loan is no longer a monopoly for large banks; NBFCs and other lending institutions have taken over the personal loan market with online loan apps and other forms of digital lending.
6. Personal Loans Require A High Credit Score
Individuals with a credit score as low as 600 can get a personal loan. The loan you get with a low credit score may not be favorable in terms of interest rate or repayment terms. But you can still get a personal loan without a high credit score.
Also read: Will My Low Credit Score Be A Hurdle For My Personal Loan
7. Personal Loans Cannot Be Applied From Multiple Lenders
If you have the repayment capacity, there is nothing stopping you from applying for multiple personal loans from different lenders. Lenders will also scrutinize your existing loans and liabilities before sanctioning your loan. So if they feel that you can’t repay the loan, they will not process it.
One downside to applying from multiple lenders at the same time is the number of hard enquiries that will fall on your credit score, ultimately reducing it. So be careful about that. Check your credit score regularly to be updated about your credit standing.
8. Personal Loans Require A Collateral
Personal loans are unsecured loans that do not require any kind of collateral. Since there is no collateral, they charge you a higher rate of interest compared to other loans but still, they are one of the most affordable and accessible loan types for everyone.
9. Personal Loans Do Not Have Prepayment Option
This is another myth that needs to be clarified. As per latest guidelines, banks cannot deny pre-closure on personal loans. The only condition is that you should complete at least 1 year of EMI payments (12 installments) before you can go for prepayment. However, part payment is not allowed by many banks. Check with your lender on this particular policy.
10. Personal Loans Can Be Used Only For Specific Purposes
Personal loans can be used for any of your ‘personal’ needs. Be it financing a vacation, your marriage, higher studies, or furnishing your house; personal loans can be utilized for any end use without any restriction.
Personal loans offer the convenience of instant disbursal that puts liquid cash in your hands in times of need. Personal loans are unsecured and can be availed even with a less than average credit score. With instant loan apps flooding the market, more and more individuals are able to realize their dreams.