Personal loans can be a boon for people in a financial crisis. However, many misconceptions about this financial product can confuse prospective borrowers. From hidden fees to long-processing periods, an abundance of information is available on the internet regarding these loans. Some data is accurate and helpful while others are plainly myths. If you need a personal loan to bail out a financial crisis, you need to sift the facts from the myths.
Here are some common myths regarding personal loans, which you must ignore.
1. Personal Loan and Credit Score: Having an excellent credit score is essential to avail a personal loan, but it is not the only personal loan eligibility criterion. The lender evaluates the borrower’s credit score to assess the risk of credit. However, there are various other criteria apart from the credit score, which can boost your chances of availing a loan. Moreover, you can increase your credit score by paying off your pending payments towards credit card purchases, loan EMIs, and other dues.
2. Wrong Information about Eligibility: A personal loan is for personal use. It can also be used in case of financial difficulty arising out of a medical emergency, business-related problems etc. The only thing you need to consider as a borrower is that the purpose of the credit must be legitimate. Most people do not apply for a personal loan during a medical emergency or other financial crisis as they assume the fund cannot be used for those purposes.
3. Personal Loans and Interest Rates: Most internet data on personal loans mentions high-interest rates. However, if you scrutinize it a little, the average interest rate on personal loans ranges between 12%-24%. It can be lower if you have an excellent credit history. However, if the credit risk associated with your loan is high, the interest levels can rise. Hence, the interest rate is dependent on your risk profile. If you repay all your credit on time, your credit score can be high. Another aspect that you may like to consider is the interest on credit card purchases can go way beyond personal loan interest rates. This is why during a financial emergency, it can be better to avail a personal loan than using a credit card to save on the interest.
4. Are Personal Loans Only for High-Net-Worth (HNI) Applicants? There are various myths regarding the eligibility for personal loans; out of this is a crucial one that needs to be busted. Though not everyone can avail a personal loan, there is no need to be an HNI to avail a one. If you have a well-paying job, you can avail a personal loan. The loan amount will depend on the salary you draw every month. If you are self-employed with a good track record of credits, you can avail personal loans. Personal loans are mainly designed for salaried people to meet a cash crunch or a financial crisis, but self-employed people can also borrow a personal loan. The eligibility criteria primarily depend on the chosen lender.
5. Personal Loans and Processing Time: Often, people do not apply for personal loans during a crisis due to this myth. Various sources state it takes a lot of time to process a personal loan, which can be a myth. If you know how to apply for a personal loan online, your loan application can be approved easily. Some NBFCs approve loan applications within 24 hours, which can be extremely beneficial during an emergency.
‘6. Only Banks Disburse Personal Loans’: In recent times, there have been several financial lenders apart from banks that disburse personal loans. One of the best sources for availing personal loans is from non-banking financial institutions.
7. ‘No Personal Loan, if you have a mortgage on your head’: This is another myth, which has no fact to support itself. Even if you have a credit, you can avail another personal loan if your earnings support it. A lender assesses your repayment capabilities if you can prove to pay off both the loans simultaneously; thus, approving your application.
The process of availing a personal loan through them becomes more straightforward with pre-approved offers. You can ignore the myths regarding personal loans and avail one for your requirement without any hassle.