Personal loans are a sensible option for meeting urgent cash requirements without any collateral. They offer borrowers flexible repayment options, competitive interest rates, seamless liquidity, and easy eligibility, provided they meet the basic eligibility criteria.
Still, despite all the benefits of a personal loan, especially during emergencies, several misconceptions about personal loan recoveries can mislead borrowers and create unnecessary fear before they avail themselves of these services.
Here are the top five myths about personal loans and their recovery refuted to help borrowers make informed decisions.
I. Myth: Borrowers must submit collateral
Reality: Personal loans are independent products. They do not require borrowers to pledge any security. This means a borrower is not required to pledge any asset as collateral for approval.
II. Myth: The loan approval process is lengthy and complicated
Reality: The loan approval process is not lengthy. Most banks and financial institutions offer a seamless, straightforward, and quick online application process that can be completed within minutes, provided the loan applicant meets the basic eligibility criteria set by the lending institutions for different loan products.
III. Myth: Personal loan interest rates are very high
Reality: Given that personal loan interest rates are definitely higher than secured loans. This happens as secured loans are generally accompanied by collateral. Still, the personal loan interest rates are generally lower than credit card interest rates. Several lending institutions also provide aspiring borrowers with comparative and affordable rates.
IV. Myth: A high credit score is essential for approval
Reality: A high credit score is an extremely important factor in loan approval. A credit score over 750 is generally considered excellent. While a good credit score improves chances, lending institutions also consider factors such as income, employment history, and debt-to-income ratio while clearing loan applications. So all these factors also must be kept in mind.
V. Myth: Borrowers paying off existing loans can’t get a personal loan
Reality: When you already have a loan opened in your name, a lender will scrutinise it closely. They will check and monitor the repayment tenure and history. If you have diligently repaid your personal loan or home loan EMIs on time, then this will go positively for you with any new personal loan or credit card applications. As it will help in building a solid credit history.
Personal loans can definitely be valuable tools for aspiring borrowers to meet urgent financial needs, including emergencies, but they still carry risks such as higher interest rates, hidden charges, implications for credit scores and high processing costs.
That is why borrowers should never rush with any particular loan product and carefully compare options, assess repayment capacity and consult financial advisors before applying for any particular loan. This becomes important to avoid unnecessary debt traps and to make informed borrowing decisions.
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