A personal loan is a form of lending tool that helps you finance most large purchases and expenses, from a wedding ring to home renovations, often at a lower interest rate than paying with a credit card. Unlike credit cards, retail loans provide borrowers with a one-time cash flow. The borrowers then repay this amount, called the principal, along with interest in regular monthly installments over the term of the loan, known as the term.
Thanks to advances in technology, it takes less than ten minutes to apply for a personal loan online, where digital lenders offer various types of personal loans. The complete process from application to loan repayment takes less than a day, and loans are often individually tailored to your needs.
Like any other financial decision, getting a personal loan involves many issues, such as:
- Which lender should you choose?
- What type of personal loan should you choose?
- How to get a personal loan?
While the answer to these questions is important, it is equally important to dispel myths about personal loans first, as they can cloud judgment when trying to find answers.
Personal Loans Myths
If you are a first-time borrower, you may be nervous about getting a loan. It can be assumed that obtaining a personal loan is a laborious process associated with high interest rates or the need to maintain collateral on the loan. There are many myths surrounding personal loans that often deter people from using them when they really need access to finance. Here is a list of ten myths about personal loans.
1. Personal loans are offered only by banks.
The most common misconception about retail loans is that banks are the only financial institutions offering loans to individuals. Although banks are part of financial institutions offering loans, there are several non-bank financial companies (NBFCs) that offer loans to individuals.
In some cases where banks may reject a loan application from an applicant due to strict regulations, NBFC and other digital lenders often accept applications from these borrowers at similar interest rates and with more personality.
2. Personal loans require a long processing time.
Borrowers often refrain from applying for a personal loan on the assumption that it requires a relatively long processing time and tedious approval process. This may have been true in the past, but not quite so in 2021.
Now the entire process from applying to issuing a loan in your account can be completed within 24-48 hours. It is necessary to fill out an online application and upload the required documents, which takes only a handheld device and less than a few minutes.
3. Low credit rating means loan rejection.
A low credit rating can affect the outcome of your loan application, but does not guarantee rejection. While this is an important criterion for approval, lenders also look at other factors such as age, income, authenticity of documents, ratio of fixed obligations to income, etc.
Credit policies and eligibility criteria may differ from lender to lender, but for loan approval, they primarily assess your ability and intention to repay.
4. Personal loans cannot be granted if you already have an existing loan.
Some loan applicants feel that they cannot use a personal loan if they are already repaying an existing loan. This is not true, and the same criteria apply to authorizing a second personal loan as to the first.
You are eligible to apply regardless of whether you have loans or not. Your lender will review your application based on solvency, taking into account your income, cash flow and existing liabilities.
5. Personal loans require collateral
Personal loans are unsecured loans and do not require collateral, so a minimum of paperwork is required. It is also one of the key factors why getting a personal loan is quick and hassle-free.
6. Only employees can apply for a loan for individuals.
It is widely believed that only people with a salary and a stable income are eligible to apply for personal loans. However, individuals who are self-employed professionals and business owners can also avail of personal loans.
The decision to issue a loan does not depend on the profession, but on the person’s ability to borrow money and his ability to regularly service the loan.
7. Personal loans always have high interest rates.
Since personal loans do not require collateral, they are expected to be issued at very high interest rates. In fact, the interest rate differs from lender to lender and often depends on your credit profile.
Interest rates usually range from 16% to 24% per annum and are thus available at a much lower rate than credit cards. In addition, you are not required to pledge a collateral or freeze the asset, which makes the deal more profitable with a difference of several hundred rupees.
8. Personal loans do not have early repayment options.
Another myth about personal loans is that the borrower cannot repay the loan amount until the loan expires. The fact that loans to individuals have a shorter maturity does not mean that loans to individuals do not have early repayment options.
While banks may charge a small prepayment fee, digital lenders these days tend to only have a minimum tenure during which individuals must make monthly EMI payments. After a minimum tenure of, say, 3 to 6 months, borrowers can collect their loan without any additional fees.
9. Getting a personal loan will only increase your debt burden.
This seems logical because getting a personal loan when you already have existing debt will only increase your burden. However, you can refinance all your debt, including multiple loans, credit card debt, through a personal loan, thereby consolidating all your debt and paying only one monthly installment at a fixed interest rate that matches your cash flows.
10. It is difficult and difficult to apply for a loan for individuals.
Compared to getting a car loan or home loan, getting a personal loan permit can be a much easier process. Applying for a personal loan these days is as easy as filling out an online application and waiting for approval from a few minutes to several hours.
The process is so simple that you won’t need help, but even if you do, you can contact the digital lender’s customer support team and get help immediately.