Personal loans help borrowers meet day-to-day needs and aspirations such as medical expenses, education costs, home reconstruction and other similar family or lifestyle-related requirements.
Let us discuss five widely prevalent myths you should stop believing to make the most of your personal loan. Understanding these myths will boost your confidence and help you manage your expenses more efficiently.
Myth 1: Only salaried individuals are eligible
A prevalent misconception about personal loans is that they are exclusively designed for salaried individuals. In reality, self-employed professionals, business owners, start-ups, and even pensioners can qualify for a personal loan. There are no such salary-related restrictions on individuals aspiring to apply for a personal loan.
Still, it is important to remember that other personal loan applicants, such as pensioners, business owners, self-employed individuals, etc., must demonstrate a stable income and reasonable repayment potential.
Financial institutions and lenders check factors such as income consistency, credit scores, creditworthiness and employment type before allowing the disbursement of personal loans.
Myth 2: A low credit score means automatic rejection
A high credit score, preferably a score above 750, boosts loan approval chances. Still, a lower score does not necessarily mean a simple rejection. Lenders also take into account income, debt levels, and employment stability, along with the past payment history of applicants, before providing them with personal loans.
That is why personal loan applicants with lower credit scores or a recent history of defaults might still be able to secure personal loans, but such loans may come with higher interest rates or stricter repayment terms and conditions.
Myth 3: Personal loans have high interest rates
It is generally believed that personal loans carry exorbitant interest rates. Still, rates usually range between 10 and 15 per cent per annum. These rates can be higher for individuals with weak credit scores, recent defaults, missed personal loan EMIs, or credit card bill payments.
Compared with credit cards that charge up to 45 per cent annually, personal loans are a more affordable unsecured credit option. That is why, before proceeding with your personal loan application, clearly discuss your expectations, goals, and objectives with the customer service executive concerned with your respective financial institution.
Myth 4: Existing loans disqualify you from new ones
This is yet another myth that needs to be busted. Having an existing loan doesn’t automatically disqualify you from applying for and obtaining a new one. A long and consistent repayment history aids both your credit score and your overall credit profile.
Lenders check your debt-to-income ratio to see if you can manage additional repayments. If your income supports it, then securing another personal loan is feasible.
A high credit score, preferably 750+, can go a long way toward assisting you with securing another personal loan and paying an ongoing EMI on it. Eventually, it comes down to your integrity and honesty as an individual about how sincere you are with the repayment of your personal loans.
Myth 5: Personal loans are only for personal use
Despite the name, personal loans aren’t restricted to personal expenses. Funds can be utilised for various purposes, including business investments, education, or consolidating other debts. Lenders typically don’t impose strict usage restrictions.
Even after the name, personal loans are not restricted to just personal expenses. Funds acquired through personal loans can be utilised for numerous other purposes such as business investments, consolidation of debt, education, medical emergencies etc.
Financial institutions and lenders do not generally impose strict usage restrictions on the personal loans disbursed by them. Still, in your best interest it will be prudent to clearly discuss this issue with your lender to avoid complications later on.
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