Debunking the most common personal loan myths
Myth 1: Personal loans are only for emergencies
Many borrowers view personal loans as a means only for emergencies. Modern lending provides for many intended uses, such as educational expenses, vacations, home renovation, and the consolidation of high-interest debt.
Myth 2: You need a regular job and a good credit score
With lenders often qualifying only those with regular employment and with good credit score. This is not the case. Lenders also assess instalment repayment capacity (disposable income), credit history, and consistency of income. Even self-employed people, seniors, and professionals with the appropriate paperwork qualify for loans, although at slightly higher interest rates.
Myth 3: Personal loans have too high interest rates
Unsecured loans usually have higher interest rates than mortgages or car loans, but they are still often much cheaper than credit card borrowing. Credit cards (and also cash advances) can easily have interest rates of 36 – 45% APR. Typical starting range for a standard personal loan is 9.50% p.a., depending on your creditworthiness.
Myth 4: The application process is complex and lengthy
The time of complicated and lengthy application processes is gone. Digital channels are now offering instant personal loan options; often these have same-day disbursements, paperless approval, and little, if any, documentation.
Myth 5: When you take a loan, your credit score will drop
Contrary to popular belief, a personal loan, when managed responsibly, can indeed increase your credit score. While a hard inquiry may temporarily lower your credit score, on-time EMIs improve your credit mix and utilisation, which ultimately provides a positive impact on your credit score.
Myth 6: You require collateral or a co-signer
Personal loans are unsecured loans that don’t ask for collateral such as real estate or gold. Rather, the main factors (not guarantees) are your credit score, a reliable income, and a low debt load.
In conclusion, personal loans are frequently misconstrued. When used responsibly with knowledge of cost, payback, and purpose, they can be a real flexible tool resulting in financial goals without the stigma of myths. Borrowers can utilise personal loans as a strategic credit strategy with confidence if they can identify fact from myth.
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