6 Biggest Myths About Personal Loans You Should Stop Believing Immediately

Personal loans are often surrounded by various misconceptions, causing many people to hesitate or make ill-informed financial decisions. However, when used responsibly, a personal loan can be an incredibly useful financial tool. Let’s bust six common myths about personal loans and understand the facts behind them.

1. You Need a Regular Job and High Credit Score to Get a Personal Loan

A widely believed myth is that personal loans are only approved for salaried individuals with an excellent credit score. In reality, lenders evaluate various factors such as income stability, post-expense savings, and overall credit history. Self-employed individuals, freelancers, and even senior citizens can qualify for a personal loan, provided they have proper documentation and a stable income source.

2. Personal Loans Are Only for Emergencies

Many think personal loans should be used only in financial emergencies. However, personal loans today are commonly availed for education expenses, home renovations, vacations, or even debt consolidation to pay off high-interest loans in one go. They offer flexible usage beyond just emergencies.

3. Collateral or Guarantor Is Mandatory for Personal Loans

Unlike home or car loans, personal loans are unsecured loans, meaning you don’t need to pledge any collateral like property or gold. Lenders approve loans based on your income profile, existing debt load, and creditworthiness. No guarantor is needed either, making the process simpler for borrowers.

4. Personal Loan Interest Rates Are Always Very High

Another myth is that personal loans come with exorbitant interest rates. While it’s true that personal loan rates are slightly higher than home or auto loans, they are significantly lower than credit card interest rates, which can go up to 36-45% annually. Personal loans typically start at 9.5% per annum, making them a cost-effective borrowing option for disciplined payers.

5. Getting a Personal Loan Is a Lengthy and Complicated Process

Earlier, availing a personal loan was considered tedious with excessive paperwork. But with digital lending platforms and fintech innovations, personal loan approval has become quick and hassle-free. Many banks now offer instant approval with same-day disbursal, all through a paperless process.

6. Taking a Personal Loan Will Damage Your Credit Score

One of the biggest myths is that taking a personal loan negatively impacts your credit score. While a hard inquiry during loan application may temporarily dip your score, repaying EMIs on time actually improves your credit profile. Responsible borrowing and disciplined repayment enhance your creditworthiness in the long run.

Conclusion:

Personal loans are often misunderstood due to prevailing myths and half-truths. With the right information and responsible financial behavior, personal loans can be a valuable resource for managing various financial needs efficiently. Always evaluate your repayment capacity and loan terms before applying, and don’t fall for these outdated myths.