Personal loans are a great way to fund any personal expense. Many borrowers prefer to apply for this type of loan given the flexibility they enjoy on the end usage of funds. Financial institutions do not require any type of collateral from borrowers while offering this type of loan, so it is really simple to apply for one.
However, there are a few myths regarding personal loans. People who believe these myths might hesitate before applying for a personal loan and arranging for the finances that they require. So, here is a list of myths that everyone should stop believing in:
Only salaried employees can apply for personal loans
This is one of the most common myths out there which is just not true. Financial institutions require borrowers to be earning an active and regular monthly income in order to be able to afford the monthly instalments of a personal loan. A salaried as well as self-employed individual can get the loan if they have maintained a good credit score, earn a steady monthly income, and have all the required documents in place.
Borrowers with low credit scores cannot apply for personal loans
While it is true that borrowers who have good credit records are more likely to get better deals offered by lenders, it is not true that those with low credit scores cannot apply for a personal loan. While a credit score is an important aspect that lenders take into account, it is not the only one. Financial institutions will also look at a borrower’s repayment capacity, which means evaluating their income and job profile.
Personal loans have high interest rates
Financial institutions do not require any collateral from a personal loan borrower. This has led some people to believe that lenders set very high interest rates for personal loans. However, this is not true at all. In fact, taking a personal loan can actually be a better alternative to using a credit card for personal expenses. Lenders can offer a competitive personal loan interest rate to borrowers who have maintained strong profiles.
A personal loan increases the borrower’s debt burden
Borrowers think that taking a personal loan can add to their already existing debt. Now, if they have already taken a couple of loans, taking another one will add to the EMI debt. However, one can actually refinance all their debt obligations, be it multiple loan EMIs and/or credit card bills, through a personal loan. Consolidating all their debt and just making one personal loan EMI payment becomes much easier to track.
After being aware of these myths, it becomes much easier for a borrower to understand the benefits of personal loans. Now, before applying for a personal loan, it is advisable to use a personal loan EMI calculator. This calculator will help in understanding the monthly instalments of the loan beforehand. This makes it easier to understand whether the loan plan is suitable for your budget.