What are some common misconceptions about personal loans?

In India, there are many common misconceptions regarding personal loans, many of which can cause uncertainty or hesitancy when thinking about this type of loan. One common myth is that personal loans are only meant for emergencies. In reality, personal loans are highly versatile and can be used for a variety of needs—ranging from home renovations and weddings to travel, education, or even debt consolidation. Another frequent misunderstanding is that personal loans always come with extremely high interest rates. While it’s true that these rates are usually higher than those for home loans but they are usually lower than the credit card rates and can be pretty competitive especially for borrowers with good credit scores.

Some people believe that only salaried individuals are eligible for personal loans, but this is not the case. Self-employed professionals, business owners, and even freelancers can qualify, provided they meet the lender’s income and documentation requirements. It’s also wrongly assumed that having a low credit score means automatic rejection. Many lenders consider other factors like income, employment stability, and existing financial obligations, so approval is still possible, though terms may vary.

Another myth is that personal loans cannot be prepaid or closed early. In fact, most lenders allow prepayment or foreclosure, sometimes with a nominal fee. Lastly, some worry that taking a personal loan will always harm their credit score. While a loan application can cause a small, temporary dip, regular and timely repayments can actually improve your credit profile over time.