Personal loans have long been one of the most preferred financing options available in the lending market of India. These loans come with attractive features and facilities that make them suitable for financing a host of expenses. Often termed as cash loans, these loans provide immediate cash to help you meet your emergency needs with ease.
Some of the best features that make these advances popular among borrowers are unrestricted-end-use, multipurpose use, zero-collateral and easy disbursal. With online loan apps digitalizing the lending market, availing a personal loan has become easier than ever. This too has resulted in a steep rise in the use of cash loans.
But before you opt for a personal loan, you must know the truth about this financial tool to make the most out of it. Read on to discover 7 top misconceptions related to personal loans.
Top 7 Misconceptions Related to Personal Loans
- Personal loans are collateral-based financing options
When availing cash loans, people often worry about the collateral, but this is a common misconception. Because of this misconception, many people avoid availing a personal loan. Personal loans are available as both secured and unsecured loans. Based on your preference you can avail a collateralized or a collateral-free personal loan.
- Low credit score always leads to loan application rejection
Another common misconception prevalent among the borrowing segment is that if you hold a low credit score, you will end up getting rejected for a personal loan. It is not the case though. Although credit score is crucial for personal loan approval, it is not the sole criterion. You can get your personal loan approved with a low credit score as well. If you apply for a personal loan with a low credit score, it is likely to impact the terms at which the lender would agree to provide the loan, one of them being a higher interest rate.
- The processing time for personal loans is long
This was indeed true a decade ago, but today, you can avail a personal loan within hours. With online loan apps, digitalizing the entire loan process, you get instant approvals within minutes and the loan amount gets disbursed into your account within 24 to 48 hours. This makes personal loans the perfect choice of financing for emergency situations.
- You cannot avail a personal loan if you are already servicing a loan
Many individuals also believe that if you already have a loan, you become ineligible for a new personal loan. This is not true though. Your eligibility for a new personal loan entirely depends on your income-to-debt ratio. If your total monthly EMI payment is less than 50 per cent of your total monthly income then you can avail a cash loan with ease.
- Personal loans are available only to salaried individuals
Initially, personal loans were introduced for the salaried class, and hence this notion is widely prevalent. But today, personal loans are available to a wide category of borrowers. Whether you are a salaried individual or a self-employed individual, a personal loan is easily available to you. The features and facilities of these loans are also customised as per your financing needs.
- Personal loans attract high rates of interest
People often believe that personal loans come with a high rate of interest. Though personal loans have higher interest rates than a home loan or car loan, you can avail a personal loan at lower interest rates too. The rate of interest levied is a pure reflection of the lending risk that your financial institution has to bear based on your borrowing profile as well as a few policy-induced factors. Having a good credit score, a low debt-to-income ratio, and a high income can help you get a cash loan at reduced interest rates. You can also opt for secured personal loans for better interest rates.
- Only banks offer personal loans
This is a huge misconception among borrowers. Today, you can avail a personal loan from banks, non-banking financial corporations, or fintech companies. Fintech companies offer you instant loans through online loan apps. They are perfect for small ticket loans as you get better transparency, support and lower interest rates.
These were the most common misconceptions about personal loans that can blur your financing decision. Today, there are many customer-centric personal loans that can help you meet emergencies and manage your finances well.
However, before availing a personal loan, you must know that it is a financial liability and you must borrow responsibly. Consider your requirement well and always prepare a repayment plan before availing the loan. Check your credit score, consider ongoing debts and research the different personal loan offers before opting for one. This will help you get the best deal on your personal loan.