It’s 2021 and finance has become an inseparable entity from the economy. There is a loan for almost every financial necessity that arises. If one needs to buy a house or start a new business venture, banks and NBFCs are ready to financially facilitate people’s requirements. Out of all the different types of loans available, personal loan is the most versatile one as it can be availed for almost any of your requirements. From clearing off debts to managing wedding expenses – personal loans work for all. However, despite being the most versatile type of loan, it won’t be wrong to call it one of the most misunderstood types of loan. There are various myths about the same.
Let’s debunk the top 7 myths pertaining to personal loans.
Myth 1: Personal Loans have a very High Interest Rate
The most common misconception about personal loans is that it has a very high-interest rate but that is not the case. In the majority of the cases, lenders levy the interest rate based on a person’s repayment capacity and credit score. Having a low repayment capacity and credit score often results in a higher interest rate. If an individual has a high credit score and a good repayment track record then he can avail a personal loan at as low as 10.99% rate of interest.
Myth 2: Only Salaried Individuals are Eligible for Personal Loans
It is widely believed that only salaried individuals, who have a steady influx of income, can apply for personal loans. This is not at all true. Even self-employed individuals are eligible for personal loans. Yet there is no denial of the fact that salaried individuals do have an edge over the self-employed when it comes to the ease of loan sanction. A salaried person’s loan application’s approval is easier since there is a regular inflow of funds. For self-employed individuals, lenders test their credit score and ITR before sanctioning the loan.
Myth 3: Only Banks can Provide Personal Loans
Another myth about personal loans is that only banks can sanction personal loans. In reality, there are many Non-Banking Financial Companies that provide personal loans. In cases where banks have rejected a personal loan application of an individual, NBFCs have come to the rescue of the borrower. The eligibility to avail a personal loan from an NBFC is far more flexible and easy as compared to that in the case of banks. So when a bank rejects your personal loan application, you can try your luck with an NBFC.
Myth 4: Personal Loan Application is Rejected if Credit Score is Low
Credit Score is an important determining factor when it comes to Personal Loans. But that does not mean that a person with a low credit score cannot avail of a personal loan. Many other factors take precedence over a low credit score. Lenders also take into account the borrower’s repayment capacity, income, etc. However, one must keep in mind that the interest charged to borrowers with a low credit score is relatively higher compared to that charged to the ones with good credit scores.
Myth 5: Personal loans do not have a prepayment option
Personal loan has a short repayment tenure but that does not mean that the borrower cannot pre-pay the loan amount. Most of the banks and NBFCs have a minimum lock-in period of 6-12 months for which the borrower has to pay the EMIs. After the completion of this tenure, one can foreclose their loan anytime by paying the remaining loan amount at once. Some lenders may charge a foreclosure fee to do the needful.
Myth 6: You cannot apply for Personal loans if you already have an existing loan
Another misconception about personal loans is that one cannot get a second personal loan if the first personal loan hasn’t been paid off. Let’s debunk this widespread misconception – It is possible to avail a Second Personal Loan. A person can take more than one personal loan as the eligibility criteria for the second loan remains the same as the first one. If you meet all the requirements to avail a loan then you can definitely avail of it. You can approach your existing lender or a new lender, but in both conditions, if your case is not strong and your repayment capacity is not good, your loan application will get rejected.
Myth 7: Long Processing time
Earlier it did take some time to get a personal loan sanction but nowadays one can get it sanctioned in as quick as 48 hours. The financial institutions have digitized and have adapted to provide paperless services. So there is no need to submit any hardcopy of documents. Some banks offer instant personal loans which are sanctioned minutes after application submission. 3-5 working days is the standard time taken for personal loan disbursal after the application is approved.