Nowadays, personal loans are extremely popular in contemporary consumerist society. It is an easy way to buy a new product or just have some extra money to spend. However, lots of people do not understand how personal loans work. As a result, some popular myths about personal loans appeared. In this article, we will explain the nature of these myths and debunk them.
1. It is impossible to get a personal loan if you do not have a relatively high salary.
This misconception comes from the lack of understanding of the way the entire financial and banking systems work. If the banks started refusing to provide a loan to people with below-average income, they would lose a significant part of their clientele. However, the amount of sanctioned loans will vary depending on the person’s income.
2. Only banks can sanction a personal loan.
It is not entirely true. Though banks are the main institutions that may issue a personal loan, there are many Non-Banking Financial Companies (NBFCs) that offer the same service. Compared to banks, NBFCs have much more flexible criteria, meaning that the applicants that were rejected by banks can always try to receive a loan from Non-Banking Financial Companies.
3. Personal Loans have a very high rate of interest.
According to this myth, banks always offer very high rates of interest on personal loans. However, the rate of interest depends on the person’s credibility, especially the ability to return the loaned funds in time. The higher credibility – the lower interest rate of the loan, and vice versa. For example, the borrowers with a good credit score and good track record of repayments can get a personal loan with an interest rate as low as 10.99% p.a.
4. Processing time and bureaucracy.
This myth can be traced back to the 20th century when banks were overloaded with useless bureaucratic procedures. However, nowadays, digitalization allows borrowers to receive the loan very quickly. Besides, the number of documents required for the application is significantly lower than before. Hence, you can expect that your application will be reviewed very quickly. For example, the average waiting time before you get the answer is about 48 hours.
5. You cannot apply for a personal loan if you already have one.
This is not true. Banks apply the same criteria while issuing the loan, regardless of the loan the borrower already has. Credibility, salary, and credit history are all taken into consideration. However, the borrowers should not expect that the second loan will have the same conditions as the first one. It is also not recommended to use the second loan to return the first one.
To conclude, due to their complexity, the financial and banking systems have generated a significant number of myths when it comes to personal loans. However, you can always find answers to your questions from credible sources and not rely on the common misconceptions that emerged due to the lack of understanding and ignorance.