A personal loan can be extremely helpful in overcoming a financial emergency. This loan has a short turn-around time and there is no restriction on its end-use. However, there are several misconceptions around a personal loan, which make many to opt for time-consuming and more expensive means of meeting the needs for urgent funds. Today, we will bust some of these myths in order to provide you concrete information about personal loans.
Here are some of the common myths about personal loans:
- Only banks offer personal loansThis is the most common myth- personal loan is only provided by banks. However, the truth is that many other financial institutions, especially NBFCs (non-banking financial companies) and digital lenders offer attractive personal loan offers. In many cases if the loan application is rejected by a bank, an NBFC may approve the loan, since it can have a less stringent loan approval and eligibility criteria.
- You have to visit bank/NBFC branch to apply for the loan You no longer have to visit a bank branch to apply for a personal loan. The application process can be completed online. You can either apply on the official website of the financial institution or compare offers by leading banks and NBFCs on an online platform that acts as a facilitator between the financial institutions and customers. This way, you save on time, effort, money, and access a hassle-free application process.
- They imply long processing time
Many people believe that personal loans involve a tedious approval routine and long processing time. This is not true. You can expect the loan to be processed as soon as your documents are verified and get the amount disbursed within 48 hours. If you apply online, the process is faster and you can get the amount within 24 hours as well.
- Personal loans negatively impact your credit history as it is an unsecured loan
Some people have a belief that personal loan negatively impacts their credit score because it an unsecured form of loan. However, it is otherwise. If you pay the EMIs on the loan in a timely manner, it will help strengthen your credit score than be detrimental to the credit history. If you had taken too many loans beforehand, then the lender would be interested to see the mix of loans chosen, which ideally should comprise of secured loans as well to have a good impression on the lender. However, it is not a must factor to approve a personal loan.
- Personal loan is hard to obtain if your credit score is 0 or -1
If you had never taken a loan before or used credit cards for payments, then banks may not have a credit history to reflect upon to judge your financial credibility. Thus, your credit score could be 0 or -1. However, you can still get personal loan without a substantial credit history if you fulfil other eligibility criteria such as that for income required and spending behaviour.
- No option to prepay
As personal loans carry shorter tenures than several other loan options, people believe that there is no prepayment option involved. But, this is a myth. Personal loans have the option of prepayment, but these are subject to few terms and conditions. There could be a small prepayment fee involved, if the borrower wishes to prepay before a certain time-period. Check with your lender about the prepayment terms and conditions and know which is time is suitable to prepay a personal loan.
- Personal loan interest rate is very high
Loan seekers think that unsecured personal loans come with a very high interest rate. However, the rates start at as low as 10.99%, which is much lower than credit card loans (that charge about 18% to 36% per year), and several other short term loans. If you have a strong credit score and a good repayment capacity, then you can get the lowest interest rate.
- Low interest rate on personal loan is the best offer
If you are getting a personal loan at a very low interest rate, then you are indeed in for a good offer. However, it may not be necessary that the deal is the best. There could be hidden charges involved and there is always an applied processing fee, documentation verification fee and essential charges applied. To judge a personal loan’s feasibility, it will be wise to know all the inclusive charges and then compare the interest rate, before signing the loan agreement.
- It cannot be used to repay other debts
Can you pay off your other debts by taking a single loan? It may sound absurd, but many do prefer debt consolidation with help of a personal loan. Such decision is usually taken if the personal carries a lower interest rate than that incurred on unpaid existing loans.
- No loan for those with a low credit score
A good credit score is important to receive personal loan approval. However, it does not mean those with low credit score cannot apply or will have their loan application rejected. Several factors are considered for loan approval, out of which, repayment capacity, income of the applicant and their relationship with the financial institution are the ones. If you have a low credit score, you may be charged a higher rate of interest than those with a good credit score, but you can definitely get a personal loan.
- You cannot apply if you have existing loans
While approving your loan request, financial institutions judge your net disposable income after considering all repayments you make, such as credit payments, loan EMIs etc. They also judge your repayment capacity, which if sound, shall not hinder personal loan approval, even if you have existing loans. However, some applicants believe that if they have existing loans, they may not be eligible to apply for personal loan, which is untrue.
Now that you know that a personal loan is one of the easiest and affordable means to finance your urgent cash needs, you can compare the offers by banks and NBFCs across India and apply for it online to solve your financial crisis in a jiffy.