Personal Loan Myths You Must Dispel Immediately
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Loan products provide an immediate solution when unplanned expenses knock on the door. Personal loans are excellent financing options because they help deal with a range of expenses. People turn to this product because of repayment flexibility and minimal document requirements. However, numerous other advantages to this loan product are there that are buried beneath the prevalent misconceptions. Let's learn about these myths and try to debunk them.
1. A low credit score equates to a rejection
There is no denying that credit score influences personal loan approval. However, having average creditworthiness does not always mean you will be denied funding. A low credit score with no default history can lead to one of two outcomes. One is you will be approved for a small loan, and the second is the lender will charge you a high-interest rate.
2. You cannot apply with any existing debt
This is yet another common personal loan myth. But the fact is this loan product is commonly used to consolidate multiple high-interest debts and pay them all at once. The lender approves personal loans based on your repayment ability rather than the number of debts you carry.
Many apply for this loan to pay off credit card bills, gold loans, and other high-interest unsecured debt. The most important consideration here is your debt-to-income ratio. Only if this ratio falls below 40 will the lender reject your application.
3. You cannot prepay your loan
This myth may be true for a few traditional lenders. However, in the case of modern financial institutions, this scenario never occurs. Lenders nowadays allow you to foreclose your loan after twelve months of successful EMI payments. Furthermore, you can also prepay only a portion of your outstanding debt if you don't want to foreclose on the entire amount.
Check the lender's prepayment foreclosure fee before proceeding with this option. Typically, it is 1-2% of the outstanding debt. Prepayment is recommended if you want to improve your creditworthiness, and there is enough time until the loan term is officially closed.
4. Available only to salaried
Personal loans do not have stringent qualification requirements. If you are a self-employed professional who believes this loan product is not available to you, you must dispel this myth. As a business owner, if you have at least one year of experience in your current business and do not change jobs frequently, you can get approval in just five minutes.
5. High income is mandatory
You don't need your monthly income to be in lakhs to obtain a personal loan. Most lenders' minimum monthly income requirement is Rs 15,000. However, there is one condition that applies to the salaried class. If you want to get approval for a higher loan amount, you must be employed with a reputed employer.
People who work in a small shop or a startup are constantly at risk of losing their jobs or not being paid on time. These circumstances may result in a future debt default. As a result, if you work for a non-credible company and earn a low salary, you may face rejection.
6. Collateral is required
Those who are familiar with personal loan features may be laughing as they read this myth. This loan product is an unsecured form of financing. The lender only requires that you have a decent income, a stable job, and a clean credit history.
You need to pledge security with the lender only if you fall short of a few essential qualifying criteria. It ensures the safety of the disbursed funds because, in the event of a default, the lender can sell the valuables to recover the loss.
7. You need to mention the purpose of the loan
Personal loans are popular among borrowers because of the flexibility they provide. You can apply for this loan to meet any financial needs that may arise. Applicants typically seek out this loan product if they are facing a medical emergency, a debt burden, or want to pay off wedding-related expenses.
Your lender will never ask you to explain why you seek this loan.
8. Complex process
Another myth about personal loans is the lengthy application process. The truth is that this myth was true many years ago when internet penetration in India was almost non-existent. People nowadays dislike going to brick-and-mortar locations and prefer to apply for a loan from the comfort of their homes.
The application procedure starts with the use of a personal loan EMI calculator. You must first use it to determine your affordability. Then, on the web-based portal, fill out the application form and upload the KYC. If your information is correct, you will receive immediate approval.
To conclude
Obtaining a personal loan in the digital age is not a difficult task. Many well-known financial institutions have created a web-based portal or even a lending app to assist you in submitting your application online. Furthermore, this loan requires a year of experience and a minimum monthly income of Rs 15,000 and is available to both businesses and salaried individuals.