Debunking 8 Personal Loan Myths And Misconceptions

Personal Loan Myths Busted One at a Time

Whenever someone needs easily accessible funds, a Personal Loan is the first thing that comes to mind. It is an excellent, straightforward, collateral-free credit source to cover all your expenses. Since no restrictions are attached, borrowers can use it for any purpose.?

Competitive interest rates, easy online availability, minimum documentation, and flexible repayment terms are some attributes that make it a hit among borrowers in

India. However, despite its numerous benefits, many shy away from availing of Personal Loans due to several misconceptions surrounding them.?

Here, we will attempt to bust the most common Personal Loan myths one at a time.

Myth 1: Someone with an Existing Loan Cannot Apply for New Personal Loans?

One common misconception is that an individual cannot apply for new Personal Loans when they already have outstanding loans. It is only a misconception, as a person can apply for a new loan using the same criteria as it was for a first-time borrower.?

As long as they pay existing EMIs on time and maintain a high credit rating, borrowers do not face any problems getting another loan. NBFCs accept or reject applications based on an individual’s repayment capacity and credit score, not the number of loans they take.

Myth 2: Low Credit Rating Means No Loan Approval

Credit rating is a crucial parameter NBFCs check while evaluating loan applications. They determine an individual’s credibility and repayment capacity based on this 3-digit number. Top NBFCs like Clix Capital require an Experian credit score of 630 or above to approve loan applications. However, a lower score than that does not necessarily mean loan rejection.?

The score could be down due to a financial crunch in the past. Most lending institutions consider the applicant’s current repayment capacity based on their income and financial obligations and decide if they can service a new loan. Those with stable jobs and incomes may get approval despite a low credit score. However, the interest rates may be higher for low-score applicants due to higher risk, but that also depends on the particular loan and situation.

Myth 3: Longer Repayment Term Saves Money

Most NBFCs give borrowers the freedom to select a loan term according to their repayment capacity. That is why a Personal Loan EMI calculator exists. Aspiring borrowers can use this free tool on the Clix Capital website to choose a loan tenure with ideal EMIs per their monthly budget. As they increase the term, they notice that their EMI amount decreases, and vice versa. So, they believe that choosing a longer term will help them save money. On the contrary, the opposite happens.?

A longer term reduces the monthly EMI amount and makes repayment easier for the borrowers. However, the number of EMIs increases and the borrower pays more interest outgo by the loan term-end. Remember, this does not mean you should always opt for shorter tenures, as the EMI amount increases when you opt for a short tenure which may lead to overstressing your budget. ?

Myth 4: Personal Loans Have High-Interest Rates

A myth that prevents many from applying for a Personal Loan is its supposedly high-interest rates. Although its interest rates are higher than secured loans, it is not always the case. Loan providers determine the interest rates based on their internal policy and the applicant’s eligibility based on credit score, income, employment, age and other factors. Those with a low income and poor credit score might have to pay more interest rates than people with a consistent repayment history.

Myth 5: Personal Loans Have Long Processing Times

Another common myth is that Personal Loans have long processing times and require hefty documentation. It was true a few years ago, but online lending institutions like Clix Capital have made loan applications an instant online procedure, facilitating quicker verification, faster approvals, and quick disbursals.
Additionally, online lending institutions disburse the loan amount directly into the borrower's account instead of asking them to visit their office for cheque collection after approval. Several NBFCs have moved towards a completely online and paperless loan procedure that does not require physical visits or paperwork, making the process faster than ever.

Myth 6: An Applicant Should Apply for More than Their Requirement

Many believe they should apply for a bigger loan than their requirement since the approval will be smaller than their application. However, applying for more than the requirement is a big mistake, as loan providers determine an applicant's eligibility based on their income, employment, and overall repayment capacity.?
Those who apply for a considerable loan despite low eligibility will eventually get their application rejected. Over-borrowing increases the loan burden unnecessarily and stresses the borrower’s finances. Therefore, evaluating the loan requirement and applying for an adequate loan amount is crucial for approval.?

Myth 7: Lowest Interest Personal Loan is the Best Deal

The interest rate is a significant factor that helps select a loan offer. However, it is certainly not the only determinant. While it would help to check interest rates while finalising a loan offer, it does not ensure getting the best deal.

Aspiring borrowers must research and compare loan offers based on several parameters to get the best deal. Although the interest rate is a crucial parameter determining the loan cost, several other factors make up the best loan offer. These include processing charges, eligibility requirements, approval speed, flexibility and prepayment options. So, use a Personal Loan EMI Calculator to understand which loan deal is the best for you by entering how much you need and how much you can pay every month.

Myth 8: Borrowing a Personal Loan Hurts the Credit Score

People believe that taking a Personal Loan reduces the credit score by a few points due to a hard enquiry. This is not true, as borrowers with consistent on-time EMI payments do not get their credit scores impacted negatively. A loan hurts the credit score only if the borrower starts missing the EMIs and defaults on the loan. That is why it is necessary to evaluate the loan requirement, borrow judiciously, use a Personal Loan EMI calculator, and create a repayment plan before applying for a loan.

Conclusion

The Personal Loan application process is no longer arduous. Digital NBFCs like Clix Capital have made them available quickly and hassle-free. Moreover, they process the loans quickly and disburse them without taking too much time after approval.?
Borrow Wisely!