Personal Loan- Many people are often caught in some misconceptions about personal loans, which prevent them from taking the right decision. Whether it is the loan process or its terms, it is very important to understand and dispel all kinds of myths, so that you can get the right information before taking a loan. If you are also thinking of taking a personal loan , then it will be beneficial for you to know these five common myths. Let us know these myths one by one and tell you their real truth.
Myth 1: Only salaried people can avail personal loans
There is a misconception among many people that personal loans are only for salaried people. Actually this is not true. Self-employed professionals, business owners, startups and pensioners can also take personal loans. The way to personal loans is open for these people too, everyone just has to follow the rules of the lenders giving the loan. Even if you are not salaried, you have to show your stable income to get a loan. Apart from this, your credit history, credit score and income status are also taken into consideration while applying for a loan. So now you need to understand that it is not just for one type of people. Any person, whether salaried or self-employed, if his income is stable, can easily take a loan.
Myth 2: A low credit score means the loan will be rejected
It is a common misconception that if the credit score is low, it is impossible to get a loan. Yes, it is absolutely true that people with high credit scores get loans easily. But this does not mean that if your credit score is low, you will not get a loan. Banks or finance companies that provide loans do not decide only on the credit score. They take into account other things including your age and job stability. Apart from this, the payment history of previous loans or credit cards is also very important. So even if your credit score is low or there have been some defaults recently, you can still take a personal loan. However, the interest rates on such loans are high or some strict rules are added.
Myth 3: Interest rates on personal loans are very high
Many people believe that personal loans charge very high interest, but the reality is slightly different. Usually, the interest rates of personal loans are between 10% and 15% per annum. Yes, if a person has a low credit score, has not paid a loan or credit card before or has missed an EMI, then the interest rate may be slightly higher for him. In comparison, the interest rates on credit cards can go up to 45% per annum. In that sense, personal loans are a cheap and easy option, especially when you need a loan without guarantee. Therefore, whenever you apply for a personal loan, first understand your financial goals, needs and expectations well and have a clear conversation with the customer service executive of the bank or financial companies. This will help you know the correct interest rate and the terms and conditions associated with it.
Myth 4: If you already have a loan running, you won’t get another loan
Often people assume that if they have already taken a loan, then they cannot take a new personal loan. The truth is quite different from this. If you are paying the EMI of your old loan on time, then it improves your credit score and also increases your credibility. Banks or loan giving companies definitely check whether you can afford a new loan or not compared to your total income and existing loan. This is called debt-to-income ratio. If your income is good then there is no problem in taking a new loan. Along with this, if your credit score is good then the chances of getting a loan increase further.
Myth 5: Personal loans are only for personal expenses
Some people think that a personal loan is only for personal needs, but this is not entirely true. You can use a personal loan for a variety of needs – such as investing in a small business, children’s education, debt consolidation, or for emergency help. Most banks and financial institutions do not ask for what purpose you will use the loan. Still, it would be better if you ask the bank clearly before taking a loan for what purpose the loan can be used. This will prevent any problems in the future and your loan experience will also be better.