For people who need instant access to money, yet don’t have any sizeable assets, a personal loan can be a huge, huge blessing. Unfortunately, as with many financial topics, there are plenty of myths surrounding personal loans which often intimidate people from taking the loans they need.
Handling finance is no joke, and it is absolutely essential that people make well informed decisions about anything and everything that has to do with their money.
Let’s start by debunking 8 most common myths about personal loans.
Myth 1: You Need A High Credit Score To Qualify
Fact: A low credit score can still get you a loan but you may have to pay a higher interest rate
Your credit or CIBIL score shows how reliable you are as a borrower. The better your score, the more willing lenders are to offer you a loan. However, a low credit score does not necessarily mean your loan application will be outright rejected. There are plenty of other factors that will be considered by your lender such as your monthly income and what your repayment capacity is.
However, a low credit score will very likely get you a loan that comes at an interest rate that’s higher than what is charged to people with a good credit score. Hence, it’s always advisable to try and maintain a good credit score; it will make the loan application process so much simpler for you in the long run!
Note: Credit or CIBIL scores are generated in the range of 300 to 900. Anything above 700 is considered a good score.[ref]What is a CIBIL Score and Report. CIBIL.[/ref]
Myth 2: You Can Apply For Only One Loan At A Time
Fact: You can apply for more than one loan at a time but be wise about making this decision.
Sometimes, applying for more than one loan actually works in your favour, provided you have a good steady income, a good credit score and the right debt to income ratio. Why? Because this shows the lender that you know your repayment capacity well and will not delay your payments.
However, do keep in mind that when you apply for too much credit, you are also increasing your debt and it may end up looking like you’ve bitten off more than you can chew. You want your loan lender to have ample faith in your ability to repay the amount you have signed up for. Therefore, do ensure you think carefully each time you apply for more than one loan.
3. Myth: Personal Loans Have High Interest Rates
Fact: Personal loans can also come at low interest rates, depending on certain factors.
Did you know personal loan interest rates can go as low as 10.99 percent? Of course, this depends on many factors such as a good credit score and holding a stable job that pays you a good steady income. As explained earlier, these factors boost your lender’s confidence in you and hence, you’re automatically eligible for loans with a low interest rate.
4. Myth: Your Credit Card Is Cheaper Than A Personal Loan
Fact: Personal loans can be a cheaper credit option as compared to credit cards, provided you can prove your credit worthiness.
Think getting an overdraft on your credit card is a smarter option than opting for a personal loan? Think again. In fact, when compared to other credit options like credit cards, which charge interest ranging from 18 percent to 48 percent per year, personal loans are actually a far less expensive option!
Besides, credit limits are meant to be adhered to. The moment you max out your credit card and go for an overdraft, you’re actually bringing your credit score further down. Our advice? Do your homework and find out if the interest charged on a credit card overdraft is higher than that charged upon taking a personal loan. See what works out best for you and proceed accordingly.
5. Only Banks Give Out Personal Loans
Fact: There are plenty of financial institutions, other than banks that offer personal loans
There are many people who assume that just because their loan application has been rejected by a bank, they have no other borrowing option. This isn’t true. There are plenty of NBFCs (Non-Banking Financial Companies) and digital lenders that give out attractive personal loans to people in urgent need of money. In fact NBFCs are extremely willing to accept applicants even if they’ve already been rejected by banks. This is because financial institutions like these are a lot more flexible as far as eligibility criteria is concerned, as opposed to the strict loan approval criteria followed by banks.
6. Myth: Personal Loans Badly Affect Your Credit History
Fact: Personal loans don’t reflect badly on your credit history provided you make timely repayments
Taking personal loans has nothing to do with bringing your credit score down or showing your credit history in poor light. It is defaulting on your EMI payments that paints a poor picture of your creditworthiness. However, if you are consistent and punctual with your loan and credit payments, it shows you are financially responsible and that you have a good, steady flow of income – which in turn means mess risk for the loan lender!
7. Myth: There Is No Prepayment Option
Fact: Personal loans do come with a prepayment option, though there are terms and conditions that come into play.
People automatically think that just because personal loans come with shorter tenures ranging from one to seven years, there is no prepayment option. This isn’t true. Personal loans to give you a prepayment option. There are however, a few terms and conditions along with a prepayment fee that you need to be aware of. Opting for a prepayment option can help you as a borrower save on interest!
8. Myth: Online Application Is Tedious
Fact: Online application of personal loans is in fact easy and hassle-free!
There are many borrowers who take the time out to physically visit brick-and-mortar lending institutions because they think personal loan online loan application is a cumbersome process. However, online loan lending services are actually designed to save people time and stress by offering them features like instant loan approval and a paperless process. All a borrower needs to do is visit these online lending services through the internet and then do a diligent comparison of the interest rates and tenure options offered by various listed lenders. This way, he can find, apply and get approved for a loan that’s best suited to his needs and financial position, all from the comfort of his home!
You’ll hear plenty of adjectives and words like “predatory”, “substandard” and “scam” when it comes to personal loan lending services, especially the ones online. There are, however, some very reliable personal loan lenders, both online and offline that can be a great option for you today. They have in fact, become so much more popular in the last decade since banks have become more risk-averse. So here’s what we recommend. Be aware of deceptive services and do some diligent research on online personal loan lenders before you proceed with any financial institution. You will quickly find how quick and convenient it is to apply for a personal loan!