A personal loan is a loan that any bank or a lender gives without any collateral or security. It is given with minimal documentation and are also called unsecured loans. The fund from personal loan can be used for any authentic financial need.
Myths about Personal Loan
Incomplete knowledge and outdated facts about anything leads to nothing but cooking of myths. As myths are like stories, people are more interested in them and so they spread faster than the actual reality. These myths are the main reasons that people shy away from enjoying the actual benefits of personal loans. Some of the myths are:
1) Unfair Interest Rates
The average interest rate for personal loan is around 12- 14%. This may seem high but compared to the other most commonly used alternative, which is the credit card, it is much lower. Credit card interest rates range between 36-48%.
2) All lenders charge the same
Personal loans from different lenders are compared by people on the basis of the interest rates. What most people fail to take into account are the other charges such as origination fees, prepayment penalty etc. These differ from one lender to another.
3) Personal Loan only for salaried people
This is the most common and widely spread myth as it is assumed that to avail a personal loan one needs a salary slip and company ID. But the truth is private businessman or self-employed people can also avail a personal loan.
4) No loan for poor credit scores
The credit score does not the affect the allotment of loan but it surely gives a strong opinion about you to the banks. Though credit score does not affect the allotment of loan, it does effect the interest rate on the processing of the loan.
5) Personal loan only for personal reasons
Once a personal loan is allotted you can use that money for anything that helps your financial need. No lender will be interested to know how you are using the loan amount as long you make the payments regularly and on time.
6) No tax benefits
You can claim for tax benefits when you avail personal loan. This is because personal loan is not considered as the income. So it cannot be included as a part of taxable income while filing for Income Tax return. Also, if the loan amount is used for a valid reason, one can claim tax benefit on personal loan.
7) Tedious approval process
This is a most common rumour. Getting a personal loan is not a tedious process. Instead, the time taken to get a personal loan approved is lesser than for other loans because it requires minimum documentation and no security as compared to other loans.
8) Time consuming
People thing that it is very time consuming and tough to compare different interest rates and other factors before availing a personal loan. Today with smart phones and internet on the go comparisons can be made pretty quickly and accurately.
So just think about what you need rather than what you hear, spend a little time and decide on where to get your personal.