A personal loan is an important financial instrument to finance any of your expenditures. May it be renovating your house, buying a costly gadget, or financing medical costs, a personal loan is always helpful in such financial mismatches or crunches. Additionally, unlike auto loans and home loans, the amount you can avail of via personal loan can be utilized without any restriction on its end usage. Another point which makes personal loans extremely useful is their unsecured nature. You do not require pledging any security to avail the personal loan application approval. However, besides these positive points, there are various misconceptions surrounding personal loans that persist in the market. Such misconceptions often make you think twice before applying for a personal loan to meet your monetary shortfalls.
So, here in this blog, there are certain common myths about personal loan busted:
Personal loan interest rates are extremely high
Many individuals believe that the personal loan interest rates are extremely high. However, this is not the truth. Personal loans, by nature, are unsecured, and the rate of interest is comparatively higher than the secured credit option, but this does not mean the loan is extremely costly and must not be availed by the commoners. Personal loan interest rates range anywhere between 10 and 24 percent p.a. and usually are dependent upon your profile, repayment capacity and your credibility. If you have a good repayment capacity and history, you may get the personal loan approval at the lowest interest rate possible.
For instance, Mr. Daniyal and Mr. Amaar applied for personal loans together. Mr. Amaar holds a strong repayment history with a good credit score of 750 and above. However, Mr. Daniyal has a poor credit score of 650 and 2 ongoing debts. Both get personal loan approval but at distinct personal loan interest rates. For Mr. Amaar, the loan is approved at an interest rate of 10.20 percent p.a., while for Mr. Daniyal, the loan is approved at 18 percent p.a. Thus, to compensate for the higher credit risk involved, the lenders ensure to offer a higher personal loan interest rate. The only way to avail of a lower interest rate on a personal loan is to have a good credit score. You can maintain a good credit score by timely repaying your credit card and loan dues on time, maintaining a balanced mix between secured and unsecured loan options, keeping a credit utilization ratio (CUR) within 30 percent, and closely monitoring the co-signed or co-borrowed account for timely repayments, and periodically checking the credit report for any errors or mistakes. In case of any mistake or error, ensure to contact your lender or concerned credit bureau for rectification. Such corrections will instantly enhance your credit score, which in turn will enhance your personal loan approval chances.
You can avail of personal loans from just banks.
Few individuals believe that you can just avail personal loan from best banks. Well, the reality is personal loans are not just provided by banks but also NBFCs like Tata Capital, Bajaj Finserv, HDB Financial services and digital personal loan lenders like MoneyTap, Early Salary etc. Thus, it is not mandatory to always consider availing of personal loans from just banks. The major fact is digital lenders, and NBFCs have simplified eligibility as well as processing criteria as compared to nationalized banks. And when any bank turns down your application for a personal loan, you can place an application with NBFC or digital lenders as they have a flexible and relaxed eligibility criteria.
Just salaried can apply for a personal loan.
This is one of the common misconceptions surrounding personal loans that just salaried individuals with fixed income can take up a personal loan. However, this is not correct because self-employed professionals or individuals can even place applications for personal loans depending on their ITR and credit score.
Low credit score results in loan rejection
Your credit score is an essential parameter which affects your loan approval. This basically shows your repayment history of past borrowings and affects your chances for personal loan approval. A misconception that most commonly persists with a personal loan is low score results in personal loan application rejection. However, this is not totally correct as there are chances that your personal loan application, even with a low credit score, can be approved by NBFCs and digital financiers. However, they may charge a comparatively higher interest rate to compensate for the higher credit risk involvement.
Personal loans do not come with any prepayment option.
One of the major misconceptions linked with personal loans is unlike car loans, home loans, loans against property, gold loans etc., seekers of personal loans cannot prepay their loan amount before the completion of the loan tenure. In simpler words, it is an incorrectly held belief that personal loans do not permit prepayment as they have shorter repayment tenure as compared to other credit options. However, the actuality is the personal loan seeker can prepay the loan EMIs before the completion of the loan repayment tenure. With most personal loan lenders, there is usually a lock-in of 1 to 2 years, after which you can prepay your outstanding personal loan. Note that prepaying the personal loan amount before the lock-in might levy some penalty in exchange.
Longer processing time
Few personal loan seekers believe that the personal loan processing time is extremely long. Also, they wrongly believe that the personal loan documents required for loan approval are a lot. Well, while this was true for conventional personal loans years back, it is not the truth now. Now owing to the advancement in technology and the banking sector, placing the personal loan application, disbursement of loans has become quicker. Your personal loan application today, in case of a pre-approved loan, may be approved on the same day of placing the personal loan request. Remember, the process is thoroughly online, which saves plenty of time, making the process hassle-free for you. Also, the requirement for documents is minimal for loan application processing. The lenders generally ask for a passport size photo, identification document, address proof and salary proof as documents for processing your loan application.
