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With no security need, instant disbursal and zero restriction on end usage of the loan proceeds, personal loan can be highly useful for mitigating your instant financial shortfalls. However, various personal loan myths restrict many from making an optimal choice.
Check out some of the widespread myths about personal loan:
- It involves long processing time
Due to the myth of tedious approval and long processing time, many loan seekers refrain from submitting personal loan applications. Owing to its unsecured nature with no need for collateral, personal loan is generally disbursed within 2-7 days of loan application, with just minimal documents. Also, few lenders claim to process instant personal loans, which are disbursed on the same day of the application.
- Low credit score equals loan rejection
While credit score is one of the major parameters factored by the lender to assess your application, having a poor credit score does not mean outright rejection. Lenders might still approve your application owing to other parameters like your disposable income, employer’s profile, job profile etc. However, the personal loan interest rate charge in situations of low score is likely to be higher as compared to if you have a higher score.
- Personal loan is provided by banks only
Owing to this incorrect assumption that banks only provide personal loans, you miss out on applying for personal loans with new age digital lenders and NBFCs on facing loan rejection from banks. While the digital lender and NBFCs may charge a higher rate of interest, they also have a relaxed personal loan eligibility as well as approval process as compared to banks.
- Personal loan interest rate is high
Personal loan often is considered a costly choice. However, it is just applicable if you have a low credit profile. Few lenders offer personal loan interest rates for as low as 8.90 % p.a. if you have a good credit profile. Such interest rates cannot be called very high because personal loans are not supported by any security as in the situation of car loan, home loan, gold loan, loan against security, loan against property etc. For other unsecured credit options like credit card EMI, loan against credit card etc., come with a high interest rate as compared to personal loan.
- Existing loan borrowers are ineligible for personal loan
Lender factor in your repayment capacity for personal loan when assessing your application. Generally, lenders prefer offering you loan proceeds if your EMI/NMI ratio is up to 60 percent. This ratio is the percentage of your income utilized for meeting your existing and new loan EMI. Thus, even if you have any ongoing loan with sufficient repayment capacity to meet the new loan, you may be eligible for availing personal loan. Through a personal loan eligibility calculator, you can know your repayment capacity and accordingly set your EMI and loan repayment tenure.
- All personal loans have prepayment fees attached
Lenders offering personal loan based on fixed rate are free to charge part prepayment and foreclosure charges. However, there are many lenders who avoid penalizing prepayment charges despite providing loans on a fixed interest rate. However, for those lenders who levy this charge, their part prepayment or foreclosure charges can go as high as 5 percent of the part prepaid or outstanding loan amount, respectively. Note that there are few lenders who disallow personal loan part prepayment, whereas, others permit part prepayment just after repaying a predefined number of EMIs. Those lenders offering floating rate personal loans are debarred from charging prepayment fee by the RBI.
Bottom line
Personal loan is one of the best ways to fund your emergencies. Unlike car loan and home loan, proceeds availed through personal loan can be utilized for meeting any purpose. Next crucial point of differentiation between personal loan and various other credit options is that it is an unsecured credit option. It means that a personal loan seeker does not require providing any asset as security for the proceeds borrowed. The major fact that personal loan can be taken up simply seems to lend quite a lot of apprehensions from the potential loan seekers. Thus, before availing the personal loan, ensure to steer clear of the above listed myths so that you can make an informed decision. Additionally, check personal loan eligibility through the online personal loan EMI calculator before applying for the loan. Doing this will allow you to decide on an optimal EMI and repayment tenure based on your repayment capacity.
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