Personal loans have become a popular solution to all your financial woes. Many banks are offering personal loans at competitive interest rates. But with a rise in its popularity, a number of misconceptions and myths surrounding them have also increased. Some individuals may be disinclined to apply for a personal loan due to such myths surrounding them.
Some misconceptions related to Personal Loans
Only salaried individuals can get a personal loan
This is a widespread myth that loans are provided only to salaried individuals, whereas self-employed people, businessmen and NRIs are also eligible for a personal loan.
People tend to believe that these loans carry high interest rates. On the contrary, interest rates applicable on a Personal Loan (12%-15% per annum) are much lower than that on credit cards (2.5% to 3% per month).
Tedious approval process
Many customers believe that getting a loan approved is a very difficult task. The truth is that banks these days are very lenient with customers – a personal loan requires minimum documentation. In fact, you can apply for a personal loan online. Lenders send a representative to complete the documentation process to your desired address. Personal loan approval usually takes 72 hours and disbursal 5 working days.
You can’t get a loan with a bad credit history
A good credit score is helpful when you are applying for a loan. However, a bad credit score doesn’t eliminate your chances of obtaining a loan, but it may adversely affect the interest rate applicable on your loan. The loan may be sanctioned with certain limitations attached. Many lenders have identified new loan schemes which do not consider your credit history. Moreover, various non-banking financial institutions are also offering personal loans when your application for the loan is rejected by banks for want of a good credit score.
Personal loans are used only for personal reasons
Personal loan doesn’t necessarily mean that the loan amount can be used for personal reasons only. You can use it for other purposes such as investing it in your business, consolidating your debts etc. The lenders are least bothered to know how you spend the loan amount as long as you make your repayments timely.
Personal loans will have a negative impact on your credit history
It is a misconception. Personal loans do not impact your credit history in a negative way. Taking a loan and regularly paying its EMIs does not impact your credit rating adversely, rather it improves it. Defaulting on an EMI on the other hand negatively impacts your credit rating.
Credit score is not an important factor
Banks use your credit score as a tool to determine your creditworthiness. A good credit score helps you negotiate better interest rates. If you have a good CIBIL score, your loan application will be approved without any hassle.