New Delhi. In today’s time, personal loan has become an important means for people to meet their daily needs and major expenses. People are increasingly turning to personal loans for medical emergencies, children’s education, home repair or any important family expense. But due to lack of information and incomplete understanding, many misconceptions related to it remain in the minds of people. These myths not only confuse people, but also sometimes stop them from taking right financial decisions.
Myth 1: Personal loans are available only to employed people
The most common misconception is that personal loans are only for salaried employees. Whereas the truth is that self-employed, business owners, startup founders and even pensioners can be eligible for a personal loan. Banks and financial institutions definitely see whether the applicant’s income is stable or not and he is able to repay the EMI on time. Therefore, what matters more is not the source of income, but the continuity of income and paying capacity.
Myth 2: Low credit score means straight rejection
Often people assume that if the credit score is low, it is impossible to get a personal loan. While the reality is that getting a loan becomes easier if you have a score of 750 or more, but a low score does not mean automatic rejection. Banks also take into account income, stability of job or business, existing debt and payment history. Yes, those with a low score can get a loan with a higher interest rate or stricter terms.
Myth 3: Interest on personal loan is very high
It is also a common thought that the interest rates on personal loans are very high. In fact, in most cases the interest rate on personal loans is between 10 to 15 percent per annum. Rates may be higher for those with weak credit profiles or EMI defaulters. But if we compare, the interest rate on credit cards reaches 35 to 45 percent. In this context, personal loan can prove to be a cheaper and better option, provided the terms and conditions are understood properly.
Myth 4: If you already have a loan, you will not get a new personal loan.
Many people think that if they already have a loan, then it is difficult to get a new personal loan. Whereas banks do not believe so. They look at how much the total EMI is compared to your income, i.e. debt-to-income ratio. If your income can handle the additional EMIs and your payment record is good, you can get a second personal loan. Good credit history and timely payments play a big role here.
Myth 5: Personal loan is only for personal expenses
Although the name might seem like a personal loan is limited to personal expenses only, it can actually be used for many purposes. People also take it for business investment, education expenses, repayment of old loans or medical emergencies. Generally banks do not impose strict restrictions on the use of loan amount. However, to avoid any kind of misunderstanding, it is wise to clearly understand the terms and conditions from the bank before taking the loan.
Right financial decision will be taken only with right information
Personal loan is a useful financial instrument, but only when the facts related to it are properly understood. Taking decisions based on rumors and myths may increase financial pressure in future. Therefore, before taking a loan, it is important to assess your need, ability to repay and the terms and conditions. A personal loan taken with correct information not only helps in difficult times, but also proves helpful in maintaining financial balance.
