Busting Common Myths about Personal Loans

When it comes to emergencies, we're rarely ever prepared for them. So what do you do if you're running short of cash during an unforeseen emergency? Of course, you would have a substantial emergency fund you could dip into in an ideal situation. But we all know that that's easier said than done, especially now that we're in the middle of the COVID-19 pandemic. But even if you don't have an emergency fund, you can always avail of a personal loan. It is a quick and convenient way of getting an urgent cash infusion for any emergency. Several types of lenders can help you get small personal loans as well. From traditional players like banks to FinTech players known for their technological capabilities, you have ample choice. However, before applying for a small amount loan, some common myths about personal loans need to be busted. Here are four of them:

1. A Low Credit Score Means Loan Rejection

While you cannot deny the importance of a high credit score in securing personal loan approval, it is not the only factor your lender considers. Other factors play a role, including your monthly income, debt-to-income (DTI) ratio, repayment capacity, and sometimes even your employer. For example, when you apply for a personal loan for the first time, you most likely will not have a credit score. That doesn't mean you won't get your small personal loan. You have to convince your lender of your strong repayment capacity. If you're drawing a handsome salary with a reputed employer, it may work in your favor. Similarly, even if your credit score is lower than 700, you may still get it if you can show repayment ability to your lender. Just note that the interest rate offered to you will be higher than the rate provided to applicants with a higher credit score.

2. Personal Loans Have a High-Interest Rate

This is simply not true. Your lender sets your interest rate after checking various factors like your credit score, monthly income, existing debt-to-income ratio, and repayment capacity. Just because it's a small loan, it's incorrect to assume that it automatically carries a high-interest  rate. If you have a low repayment capacity, you'll be offered a higher interest rate and vice versa. This is because of the unsecured nature of a small personal loan – it's a relatively higher risk for your lender since there's no collateral involved. On the other hand, if you have a high credit score and can show solid repayment capacity, you may get a loan with an interest rate as low as 10.99% p.a.

3. Already Have an Existing Loan? You Can't Get Another One.

While it is not a good practice to apply for a new personal loan if you're already repaying an existing one, this is not to say that it cannot happen. You will have to adhere to the same eligibility criteria that were in effect for your first personal loan. As long as you can show adequate repayment capacity even after factoring in your existing personal loan EMIs, you should be fine. If not, your small personal loan application will be rejected, and you can re-apply after fully closing the existing personal loan.

4. Personal Loans are Only Available to Salaried Professionals

This is not true at all – if it were, where would self-employed individuals turn to for emergency funds? Unfortunately, this myth is still floating around because some people believe that having a steady flow of income is mandatory to avail of a personal loan. Self-employed individuals can also apply for small personal loans as long as they submit the required documents and show good credit history. This is why personal loans are so popular today – they are easily accessible to both salaried and self-employed professionals.

In Conclusion

The points mentioned above are just four of many myths around personal loans. Ensure that you never fall prey to them. If you ever find yourself looking to get a small personal loan, turn to KreditBee. From profile creation to disbursal, our loan application process is entirely online on our mobile app. You just need to download the app from Google Play, complete your profile, and relax. If you wish to learn more about our quick personal loans, please write to us at [email protected].