Personal loans have become a popular finance solution for customers in India. Almost all leading banks and other financial institutions are offering personal loans. However, with a rise in its demand and ease of supply, a personal loan is subject to a number of misconceptions and myths. Due to these widespread myths surrounding personal loans, people are reluctant to apply for a personal loan.
Here are some common misconceptions about a personal loan.
Only salaried individuals are eligible to get a personal loan
This is one of the most widespread myths about a personal loan. Many people drop the idea of getting a personal loan in financial exigencies, believing that personal loans are provided only to salaried individuals. But the truth is that self-employed people, business owners and NRIs also qualify for a personal loan.
Higher interest rate
People tend to believe that a personal loan has higher interest rates than other types of credit. Whereas personal loans have much lower interest rate (11.25%-25% per annum) than credit cards (2.5% to 3% per month). As a matter of fact, a large number of customers get a personal loan to pay off their credit card bills.
Lengthy and complicated approval process
Many customers believe that a personal loan approval process is complicated and time-consuming. On the contrary, a personal loan requires minimum documentation and other processing formalities. And with online lending players in the market, you can apply for a personal loan online in just matter of seconds and get instant approval. For physical document verification, lenders send a representative to complete the documentation process to the customer’s residence. Personal loans usually take 2 to 5 working days for disbursal.
Applicant with a bad credit score can’t get a personal loan
Although a bad credit score can create some minor roadblocks to get a personal loan from some lenders, but it doesn’t eliminate your chances of taking a personal loan. There are some lenders that offer a personal loan for bad credit with certain limitations attached. Lenders have come up with new loan schemes which do not attach great importance to the credit history. Moreover, various non-banking financial institutions are willing to offer personal loans to the customer whose personal loan application has been rejected by traditional banks due to a low credit score.
Personal loan is used only for personal reasons
Many customers are confused about the usages of a personal loan and believe that it is used for only personal reasons. In reality, a personal loan can be used for any legitimate purpose until the lender doesn’t impose any restriction on its usage. You can use it for other purposes such as business venture, debt consolidation, purchase of a home, purchase of a car, etc. Lenders don’t ask about what a personal loan is being used for as long as you make timely payments.
No tax benefits
A large number of customers don’t know about the tax benefits on a hdfc personal loan, but they can get the ones if the loan is used for a relevant purpose. According to Section 24(b) of the Income Tax Act, 1961, a personal loan borrower can enjoy tax exemptions on the interest paid on a loan used for the purchase or renovation of residential property. But this is only applicable if the loan was borrowed from a bank or financial institution. If you use this loan for higher education, you can claim tax benefits on the interest paid on loan.
Personal loan affects your credit score
Getting a personal loan doesn’t affect your credit score in a negative way as long as you repay the loan on time. In fact, if you repay the loan on time regularly, it helps build your credit score. However, defaulting on EMI payment will reflect poorly on your credit history.
Credit score is not an important factor
Remember that a credit score is one of the most important factors in a personal loan’s approval. Lenders use your credit score as a tool to determine your eligibility and check your credit worthiness. A good credit score helps you negotiate better terms. Applicants with a good credit score don’t face problems to apply for a personal loan and get the loan at a lower interest rate.