Common Myths About Personal Loans
A personal loan is a type of credit used to pay for anything. A personal loan lets people get a lump sum of cash to pay for unexpected costs.
People can apply for a personal loan online in less than 10 minutes. Personal loans are available from a wide range of online lenders. We must send the necessary paperwork online to get a personal loan. You can usually get a loan that fits your needs and situation.
The Meaning of Personal Loans
A personal loan is a type of loan that can be used for anything. It is not limited to paying off debt. Personal loans are a type of revolving credit that can give you a lot of money.
Most personal loans have a date by which the money must be paid back. In short, a personal loan will be approved if someone pays their bills on time.
Types of Personal Loans
- Secured
Secured personal loans require the person taking out the loan to purchase some collateral. A car or boat can be used as collateral for a personal loan. A savings account or certificate of deposit can also be used. If a person doesn’t pay back their loan, the lender can legally take the security deposit they put up as collateral when they took out the loan.
- Unsecured
When someone gets an unsecured loan, they don’t have to put anything up as collateral. Banks offer personal loans with and without collateral.
Unsecured loans have slightly higher interest rates than secured loans. However, it all depends on the bank.
Personal Loans and its Myths
When one borrows money for the first time, one might feel nervous. This is because they must pay high-interest rates or put up valuable things as security.
Here are some common myths people tend to believe about personal loans.
- Loan application and approval are time-consuming.
People often don’t apply for personal loans because they think it will take a long time to be approved. This used to be true most of the time. However, things have changed.
Getting a loan from start to finish in 24 hours or less is possible. To apply, all one needs is a mobile device and a few minutes to fill out an online form and upload supporting documents.
- Not for those with a low credit score
Before approving a personal loan, lenders also look at things like age, income, the authenticity of documents, the ratio of fixed expenses to income, etc.
Credit standards and requirements vary from bank to bank. Banks will assess a person’s credit score and ability to repay the loan on time.
- One can only get one loan at a time.
People who want to borrow money often think they can’t get another loan while paying off an old one. However, it is not true in the case of getting another personal loan, provided one fulfills the eligibility criteria of the lending financial institution.
If someone wants to apply for a personal loan, it doesn’t matter if they already have a loan to repay. The lender will look at their income, cash flow, and other debts when deciding if they can pay back the loan.
- You need collateral for an unsecured personal loan.
Unlike other types of loans, unsecured personal loans don’t have to be backed by an asset. People often need clarification about the difference between loans with and without collateral.
Personal property is used as security in a secured loan, like a mortgage or a car loan. If you don’t repay a car loan, the lender can take the vehicle back as security for the debt. If you don’t pay your mortgage on time, the bank might take your home and sell it to get the money back.
On the other hand, unsecured personal loans don’t require you to put anything up as collateral. Remember that the interest rate on an unsecured loan is often higher because the lender has nothing to lose if you don’t pay it back.
- Personal loans have high interest rates.
People think personal loans usually have very high interest rates because the borrower doesn’t have to put anything up as collateral. However, the interest rate may vary from bank to bank.
Nowadays, the interest charged by the bank for personal loans is minimal. It is easy for someone to apply for a personal loan online instead of using credit cards.
- There’s no prepayment option.
People often think that if they get personal loan, they will be able to pay back the money after the loan term is over. Personal loans usually have shorter terms than business or government loans, but they can still be paid off early.
Traditional banks may charge a small fee for paying off a loan early. Still, most online lenders today require borrowers to make EMI payments for at least the minimum loan term. The loan can be paid off early without a fee (often within three to six months) when the minimum time has passed.
Conclusion
There are many ways in which personal loans can be helpful. Personal loans can be a great choice if they are used well. They are a great alternative to credit cards because they can be used for almost any expense. Further, the borrower doesn’t have to put up any collateral, and the interest rate is much lower. A borrower can have a fixed monthly payment with a personal loan.
Piramal Finance is one of India’s largest financial institutions. One can easily apply for a loan at Piramal Finance and, once approved, use the received amount to meet his requirements. Piramal Finance’s flexible ways to pay back the loan and quick customer service make it easier to get a personal loan without much thought.