Unleash the Power of Personal Loans: Debunking Common Myths
Personal loans are a versatile financial tool that can help you overcome various expenses. Whether it’s renovating your home, purchasing an expensive gadget, or covering unexpected medical costs, personal loans provide the flexibility to address your financial crunches. Unlike home loans or auto loans, personal loans have no end-use restrictions, allowing you to utilize the funds as needed. Additionally, personal loans are unsecured, which means you don’t need to provide collateral. Despite these benefits, several misconceptions persist in the market, causing borrowers to hesitate. Let’s debunk these myths and shed light on the truth.
Myth 1: Personal loans have exorbitant interest rates.
It is commonly believed that personal loans carry excessively high interest rates. However, this is not entirely accurate. While personal loans do have higher interest rates compared to secured loans, they are not prohibitively high and can be accessed by individuals from all walks of life. The interest rate for a personal loan typically ranges from 10% to 16% and depends on factors such as the borrower’s profile, repayment capacity, and creditworthiness. Applicants with a strong repayment history and good credit scores may secure loans at the lowest available rates.
For instance, consider Mr. Rohan and Mr. Shetty, who applied for personal loans simultaneously. Mr. Shetty boasts a solid repayment history, a respectable CIBIL score, and a strong repayment capacity. On the other hand, Mr. Rohan has a credit score of 550 and two ongoing loans. Although both applicants were approved for the personal loan, they received different interest rates. Mr. Shetty was offered a favorable rate of 10.05%, while Mr. Rohan received a rate of 13% per annum.
Myth 2: Personal loans should only be obtained from banks.
Another misconception is that personal loans should exclusively be sourced from banks. In reality, personal loans are offered by various financial institutions, including non-banking financial companies (NBFCs) like Bajaj Finserv, Tata Capital, HDB Financial Services, and digital lenders such as Finance Buddha. It is not mandatory to obtain a personal loan solely from a bank. In fact, NBFCs and digital lenders often have simplified eligibility and processing criteria compared to nationalized banks. If your personal loan application is rejected by a bank, you can explore options with NBFCs and digital lenders, as their eligibility criteria are often more flexible and accommodating.
Myth 3: Only salaried individuals are eligible for personal loans.
One prevailing myth is that personal loans are exclusively available to salaried professionals with fixed incomes. However, this is far from the truth. Self-employed individuals/professionals can also apply for and obtain personal loans based on their credit scores and income tax returns (ITR) before loan approval.
Myth 4: A low credit score leads to automatic loan rejection.
Your credit score plays a significant role in loan approval, reflecting your repayment history and impacting your chances of securing a loan. A prevalent myth suggests that a low credit score inevitably leads to rejection of your personal loan application. While it is true that banks with strict eligibility criteria may reject applications with low CIBIL scores, there are still opportunities to secure a personal loan through NBFCs and digital lenders. Keep in mind that these alternatives may charge a slightly higher interest rate.
Myth 5: Personal loans do not allow prepayment.
Some borrowers believe that personal loans, unlike home loans or car loans, do not allow early repayment before the tenure ends. This myth suggests that personal loans lack the flexibility to make prepayments due to their shorter terms. However, the reality is that borrowers can repay the loan amount before the tenure expires,
just like any other loan. Most lenders impose a lock-in period of 12 to 24 months, after which borrowers can repay the outstanding amount at their convenience. It is worth noting that prepaying the full amount before the lock-in period may incur a penalty.
Myth 6: Personal loan processing takes a long time.
A prevailing belief among borrowers is that personal loan processing is time-consuming, involving lengthy documentation processes. While this may have been true for traditional personal loans in the past, the introduction of advanced technology in the banking sector has revolutionized the loan application process. Applying for a loan and receiving the disbursed amount can now be accomplished within a few hours. Many banks even offer instant loan facilities, disbursing funds within minutes of application. The entire process is conducted online, saving time and offering a hassle-free experience for borrowers.
By debunking these common myths, it becomes clear that personal loans are a powerful financial tool that can provide timely assistance for various needs. Understanding the facts behind personal loans enables borrowers to make informed decisions and leverage this resource to their advantage.