Personal loans have risen in popularity as a means of covering immediate or unexpected expenses due to a variety of events, such as weddings, medical emergencies, and travel. However, multiple myths and misconceptions about them still exist and this leads many borrowers into making wrong decisions, in spite of the fact that the number of loans has increased significantly.
It doesn’t matter if you are looking for a loan from a traditional bank or through a loan app, the most important thing is to identify true and false information. Thus, let us go through some of the most common and easy personal loan myths and see what is really important when you are going to apply.
Myth 1: Personal Loans Are Only for People in Financial Trouble
People often think that personal loans are only for money strugglers and thus are the very last option they resort to. Of course, in times of emergencies, they are the best supporters, yet the economically responsible individuals also use them to diversify income sources, carry out investments, or settle their expensive debt.
Let me put it straight, your personal loan is a financial instrument but the way you use it to solve your financial problems is a matter of your own. For example, borrowing money for the wedding, certifying the course of study, or eliminating high-interest credit card debt with a new loan are all activities that can be paid back by a loan.
Myth 2: You Can’t Get a Personal Loan Without a Perfect Credit Score
Most certainly a high credit score grants you more chances to be approved, thus getting the best interest rates; still, it does not necessarily mean that you cannot get a loan if your credit score is low. Plenty of lenders extend their services to the applicants with credit scores that are even just slightly lower than average through their loan app.
These lenders could be offering some secured loans or charging higher interest rates instead, which covers the risk. In the case where the less-than-perfect score is given as the reason for rejection, the applicant, however, can still be accepted if he/she shows a steady source of income and job security.
Myth 3: Personal loans have hidden charges everywhere
Loans may be definitely accompanied by some charges like processing fees, foreclosure penalties, or payment of late fines — however, they are certainly not hidden. Honest lenders are very open about these expenses in the loan agreement or on the websites.
The problem starts when borrowers do not read the fine print. Only check the total cost of borrowing, not the interest rate. A reliable loan app will make sure you get a full breakdown before confirming your application.
Myth 4: You cannot repay a personal loan ahead of schedule
It is generally believed by many people that once they have taken out a personal loan they have no option but to continue paying installments until the last one. However, most lenders give the option of prepayment — either partially or in full — after a minimum lock-in period. On top of that, a small sum may be asked for as a reimbursement for the early closure of the loan.
If you decide to repay a personal loan early you will lower the interest amount charged in total, and your credit score may also improve. This is a clever alternative in case you are given a bonus or other unexpected income.
Myth 5: There is only one interest rate available for all personal loans
Based on various factors such as credit profile, salary, location, and employment type, different lenders may offer you significantly different interest rates. No two people with the same income will receive exactly the same rate, as their financial history can cause the difference.
That is why a difference of even a few percent in the number of offers you compare first, can really affect the amount you will have to repay in the end.
Myth 6: It is more advisable to use a credit card rather than a personal loan
Credit cards work well for small transactions, but if you continuously carry the balances, then the interest charges will be far more than a personal loan. For example, if you need funds more than a couple of months, then a personal loan with a fixed EMI can be cheaper and more convenient to manage.
Apart from that, personal loans do not lead to the development of habits of revolving debt. However, credit card usage might cause it sometimes.
Myth 7: Loan Apps Aren’t Trustworthy
Just as there are trustworthy loan app platforms, there are also some that are not – definitely caution is needed. Thus, the legitimate apps which are in partnership with RBI-registered NBFCs or banks, implement regulated data protection practices and clearly disclose all terms are to be trusted.
It is good that you pick only the trusted platforms to download from, read those who have used it, and check if the lender is registered. Do not use apps that request too many permissions or money in advance.
Myth 8: One Loan Rejection Means You Can’t Try Again
If you were rejected once, it does not indicate that you have lost your eligibility for applying forever. Sometimes the reasons for closing a file are that the submitted documents are absent, some data is incorrect, or there is a short fall in the credit. Solve the problem, wait a while, and reapply with better documentation or credit behaviour.
On the other hand, multiple loan applications through various lenders can have a negative effect on your credit score. It is better to be thoughtful when applying again — especially if you are going to use a loan app that offers some sort of pre-screening based on your profile.
Conclusion
Personal loans are neither risky nor difficult. Yet at the same time, the misinformation can pave the way to unsuitable decisions or even missed chances for borrowers. Getting rid of myth-caused errors you can be more wise, confidently borrow, and repay responsibly. Whether you want to visit local lenders in person or use a loan app to compare options, keep up with the information and choose what best fits your budget.