5 Common Myths About Personal Loans

In today’s world, the monetary stability of people has decreased. The fact that they have lesser savings seems to take a toll when any unforeseen expenses appear in the scene. The only way people can live through all of that is the credit cards and the easy availability of loans. To carry out any major life decisions, the average Indian still relies on loans. Be it the house loan, vehicle loan, education loan or medical loan, all of them have improved the lives of the customer in many ways.

Now, while all of these are indeed beneficial, the fact is that we often have expenses that cannot be categorized into any of the above categories. It might be the dream vacation that you had always wanted to take or the big fat wedding for yourself. For these, the best way out would be to rely on personal loans. The best thing here is the fact that no questions are asked about where you would spend the money if you go for this. However, even today there are a lot of false ideas surrounding the idea of a personal loan. In this article, we shall 5 interesting facts concerning personal loans and busting myths associated with it.

1.    One is eligible for a personal loan even if they have an existing loan

Let us consider a situation wherein you have a running home loan and would need some money to cater to some sudden expenses. You can easily turn to personal loans. For a personal loan, the lender computes your repayment ability by taking the cumulative of loan EMI, credit card payments and all other repayments. The same is then deducted from your income to get your repayment ability. If that is above the threshold set by the lender, having other loans will not stop you from getting your loan approved.

2.    A personal loan has a low processing time

The average public has the common myth that personal loans will take a long time to process and you will not have the money when you need it. This is far from the truth and the documentation for personal loans is lesser than that of most other loans. These days, most leading banks have pre-approved offers where instant approvals may be carried out and the customer gets the personal loan in less than 24 hours. The reason these loans are so fast to process is because of the fact there is no collateral involved here and it is an unsecured loan. This makes it easier for the banks to complete the process and the customer stands at an advantage. To may most of the low processing time, it is advised that you submit all the documents in soft copy in your bank’s online portal.

3.    The interest rate on personal loan need not be high

It is a common belief that any personal loan will come with a very high-interest rate. The fact is that the interest rate on a personal loan is subjective and depends on several factors. Banks take into consideration the customer’s credit score and repayment ability before deciding this. So, the interest rate that you will have to pay will primarily depend on your profile. In many cases of a good credit background, this is as less as 10.99% Instead of a personal loan, if you use your credit card the annual interest will range between 18% and 48%.

4.    Personal loans have prepayment options

The shorter tenure of personal loans is what tempts people to believe that these have no prepayment options. But, that is not true. The average loan tenure for a personal loan ranges between one to seven years. If one can afford it, it is always advisable to go for the prepayment options. Most banks have a few terms and conditions and there will be some prepayment fee involved. You must contact your moneylender for the exact values of the same. However, even with it, opting for this option is wise as you will save on the interest cost of your loan. The prepayment fee is nominal in comparison to the amount saved on interest.

5.    Low credit score means that you will not get a personal loan

Most lenders take into consideration the credit score of an individual while approving their loans. However, just because your credit score is on the lower side, it does not necessarily mean that you will be denied a personal loan. Factors like your overall income and high repayment ability will be able to save you and make you eligible for the best personal loan. The only way you will pay a price for your poor credit score is by paying a high-interest rate for the personal loan that you will be given.

Please note that despite all precautions, you may be deprived of a personal loan from your bank. It is important to not lose hope at such times and realize that several other financial organizations offer some of the best personal loans. Try to approach NBFCs or digital lenders are they are known to be less strict about the loan approval criteria. By busting your myths surrounding personal loans, we hope that we were able to be of help to your financial decision-making abilities.