A personal loan is one of the most popular choices of finance in India. According to reports, the personal loan market has witnessed a growth of 46 per cent between 2021 and 2022. This growth is mostly fuelled by the ease of application, simple eligibility criteria, instant approvals, no end-use restrictions, digital processing and flexible repayments. These features of a personal loan make it the most practical and efficient option to handle any financial emergencies. Nowadays, you can also apply for a cash loan online from a variety of lenders in less than ten minutes. But before applying for a personal loan you must know that a loan is a financial commitment and you must make an aware decision. Here are a few popular personal loan myths that you should not believe.

Popular Personal Loan Myths 

• You May Not Get a Personal Loan if You Have a Low Credit Score

Even though your credit score is one of many essential factors that lenders take into account when examining your loan application, it is not the sole one. Before making a decision, lenders also consider other aspects including your income, employment status, and age. Lenders may approve your loan application based on these criteria, but you must note that this might result in you getting a high rate of interest on your personal loan.

• You Cannot Apply for a Personal Loan if You Already Have an Existing Loan

People who have several loans assume they are not qualified for a personal loan. However, this is not the actual truth. Since lenders consider your ability to repay a loan before approving a loan, you might get a second or a third loan if you have the capacity to repay the loan. That means you may easily obtain a new loan if your salary is sufficient to pay off both your current loan and the new personal loan. Typically, when determining your capacity to repay a loan, lenders look for a debt-to-income ratio of less than 50%.

• Personal Loans Are Only Available From Banks

This is just another prevalent misconception about personal loans. Financial technology has greatly altered the lending market, making it now feasible to obtain a personal loan from many other sources apart from banks. Non-banking financial institutions (NBFCs) also have the authority to provide loans alongside banks. Additionally, the widespread use of the internet in India has created new prospects for different digital lending platforms like personal loan app. Since they do not have the costs involved with maintaining physical branch locations, online banks have various advantages, including more attractive interest rates. Also, these online loans are available instantly as compared to bank loans.

• A Personal Loan Takes a Long Time to Get Processed

Well, this is one of the biggest myths about personal loans. Personal loans are one of the easiest ways of getting funds. Processing times for personal loans are considerably shorter than secured loans like home loans or car loans because they are made available without any kind of security. 

Numerous lenders, especially those that operate online, are renowned for speeding up the whole procedure, from the approval of your request to the transfer of funds into your bank account. Your loan may take a few hours to get approved and disbursed. Also, if you have an existing relationship with the lender then your loan process would be further expedited. 

• A Personal Loan Requires Collateral

As mentioned earlier personal loans have a shorter processing time as they don’t need any collateral. Personal loans are unsecured loans that don’t demand any collateral; the lender accepts your application based on your creditworthiness. Once you meet the lender’s eligibility criteria your loan will be approved without any glitch. 

• You Are Not Permitted to Foreclose on Your Personal Loan

Many people mistakenly assume that a personal loan does not include a foreclosure option due to its shorter term, which typically ranges from 6 to 60 months. Most banks and financial institutions have a minimum duration for which customers are required to make EMI payments on a monthly basis. Borrowers can foreclose on their loan after the required term has passed by paying a set amount known as a foreclosure fee.

• Personal Loans Are Available to Salaried Employees Only

It’s a prevalent myth that only those with reliable income are qualified to apply for personal loans. It is still possible to get accepted for a loan even if you are self-employed or have multiple sources of income. Self-employed people can also apply for personal loans, and the amount approved depends on the borrower’s income tax returns and other income documents that they submit. 

• Personal Loan Interest Rates Are Very High

It is anticipated that personal loans will have extremely high-interest rates because they do not demand collateral. In actuality, interest rates vary between lenders and frequently rely on your credit history. The reason is that many times, financial institutions and other lenders base interest rates on the borrower’s ability to repay and credit worthiness. The logic is simple, if you have a high credit score your loan interest will be low, and if you have a low credit score your rate of interest will be high.

• It’s ok if you missed your EMI due date

Many people think that it is ok to miss the due date of your EMI, and make a late payment for the same. People think that the only side-effect is the penalty that you have to pay. But in reality, skipping your EMI can impact your credit score and your future creditworthiness. Your future loan applications may get rejected or you might be offered a higher interest rate because of these missed payments. Also, the penalty on missed payments is very high which will increase your overall loan cost.

• Getting a loan closure document is not that important

Once you have successfully paid all the installments of your loan, you must ask the lender for a loan closure certificate. This certificate is very crucial as it can help you in case of any discrepancies. Also, sometimes, the credit bureau might not reflect your loan closure. In such a situation, you must get in touch with the credit bureau and submit the loan closure document. 

Conclusion

Personal loans are one of the most suitable financing options that can help you in desperate times.  Today, quick cash loans through online loan apps are rising in popularity among the young Indians. But before you go for a personal loan, you must know the correct facts and be responsible about your borrowing behavior.