Drowning with bills and pondering whether you can take out a loan to clear them? It’s a right decision, but with all the information around you and all the myths running about, you are probably stuck! Read on to dispel some of those very myths on the different types of Personal Loan.
Some common myths
Myth 1: Personal Loans take a long processing time
This is probably what plagues you the most. However, there is little truth in it. Today, low rate Personal Loans are processed very quickly, especially if you choose to apply online. Some lenders also have instant loan approval options that would allow you to receive the money within a day. Also, you are not required to pledge collateral against your loan, and hence, there is lesser documentation as well as processing.
Myth 2: Low credit score would result in the rejection of the loan application
It’s true that credit score is a considerably important factor that is detrimental to the approval of your application; however, it isn’t the sole factor. Your income and repayment capacity will have a say. There is just one catch – you might have a slightly increased interest rate.
Myth 3: Lenders mean banks
Banks are not the only lenders available. There are many financial institutions, including digital agencies that can help you through the process of lending. Most borrowers are of the impression that banks are their only option and once their loan application gets rejected, they lose hope. However, this is seldom true. Banks have very stringent eligibility criteria, and statistics show that other financial institutions, especially consultants partnered with financial service bodies, can get your application approved quickly with no hassle.
Myth 4: All lenders have the same charges
The rate of interest isn’t the only factor you need to consider. Most banks and institutions charge a nominal processing fee. Additional costs include the prepayment penalty, origination fee that can range from 1% to 5%, etc. Read the fine print to be sure you have covered it all.
Myth 5: You need to be a salaried employee to apply for Personal Loan online
This is another widespread perception. Many people believe that they need salary slips and a company ID to avail a loan. Self-employed people, as well as entrepreneurs, can Apply for Personal Loans Online. In fact, some financial bodies even issue credits against rental income. Rejection of your loan application just because you don’t have a 9 to 5 job is very rare.
Myth 6: Personal Loan can be used for personal reasons only
As funny as it may sound, people do believe this. However, your lender does not pose any terms and conditions on the utilization of the funds. You can even invest the amount in a business venture. As long as there is transparency between you and the financial institution and you make payments on time, your lender isn’t bothered on how you use the money. This is very handy, since, if you are setting up your business, then, you will be ineligible to apply for a loan for the lack of credit history. If you are in debt, you can clear them off with a Personal Loan and later on pay this one in instalments.
Myth 7: No tax benefits
A Personal Loan is not income. Hence, when you are filing your returns, this amount will not be taxable. However, this will be possible only if the loan has been availed through a financial institution or a bank. Also, tax benefits can be claimed, only, if the expense is valid.
The list of myths does not end here. Many also think that the interest rates on Personal Loans are higher, whereas, the average Personal Loan interest rates fall between the range of 11%-15%. This may, at first glance, seem high; however, when compared to other options such as credit cards, whose interest rates can range up to 48%, Personal Loans are a viable option. Many people are of the notion that a Credit Card loan is more accessible – they could have never been more wrong. You don’t even need to set up collateral for Personal Loans. Hence, if you are short of cash and need some urgently, then this is the best option.
Also Read: Personal Loan Pre-Payment Decoded
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