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Personal Loan Misconceptions – Top Myths

Myth 1

"Personal loan interest rates are always extremely high – I can never afford them."

Reality: Interest rates vary 10–24% based on credit score, lender, and tenure. Good credit (750+) can get rates as low as 10–12%, competitive with many other loans.

Why this is dangerous

Borrowers avoid personal loans entirely and resort to dangerous alternatives like unregistered lenders, causing financial ruin.

Practical Example: Ravi (CIBIL 720)

Expectation vs Reality

Scenario: Ravi needs a ₹10 Lakh loan but fears "20%+" interest rates.

The Myth
Assumed Rate: 20%+
Fear: Unmanageable EMI
The Reality
Approved Rate: 13% (4 Years)
EMI: ₹26,275 (Manageable)
Saved him from 30% private lender rates.
Pro Tip: Check your CIBIL score for free. Visit 2–3 banks for pre-approvals (soft inquiries) to see the actual rates you qualify for.
Myth 2

"Only people with very high income can get a personal loan."

Reality: Banks and NBFCs approve personal loans for self-employed, freelancers, business owners, and even gig workers earning ₹15,000+/month with stable income proof.

Why this is dangerous

Middle-income or self-employed borrowers never apply, missing access to affordable credit they genuinely qualify for.

Practical Example: Anand (Freelancer)

Digital Approval

Scenario: Earns ₹30k/month via digital platforms. Lacks standard salary slips.

Traditional Bank
Result: Rejected
Reason: "Lack of employment proof"
Modern NBFC
Result: Approved (₹5 Lakh)
Proof Used: 12 Months UPI History

*Anand used the funds to buy equipment, doubling his income in 2 years.

Pro Tip: Prepare 12 months of bank statements + CIBIL + GST returns. NBFCs are often more flexible than banks for non-traditional income.
Myth 3

"Personal loans are only for emergencies or temporary needs."

Reality: Personal loans are legally unsecured credit with no end-use restriction. You can use them for education, business investment, debt consolidation, or any legal purpose.

Why this is dangerous

Borrowers self-limit and miss using affordable credit for wealth-building purposes like upskilling or business setup.

Practical Example: Sneha (Teacher)

ROI Analysis

Investment: Took ₹5 Lakh loan @ 12% for MBA certification.

Cost
EMI: ₹12,150/month
Total Interest Paid: ~₹1.3 Lakh
Return (ROI)
Salary Hike: +₹30,000/month
Net Gain: Loan paid for itself quickly.
Pro Tip: Use personal loans strategically for income-generating purposes (education, business setup, equipment) to maximize ROI.
Myth 4

"Personal loans always destroy your credit score."

Reality: Hard inquiries temporarily reduce score by 3–5 points. However, timely repayment adds "Positive Repayment History" and "Credit Mix," improving score by 50–80 points long-term.

Why this is dangerous

Borrowers avoid building credit history and remain trapped in debt loops without access to affordable credit.

Practical Example: Vikram

Score Journey
Start: CIBIL Score 680 (Credit Cards only).
Action: Took ₹6 Lakh Personal Loan.
Impact: Score dipped to 675 (Hard Inquiry).
Result (4 Years later): Paid all EMIs on time.
Final Score: 765 (+85 Points).
Pro Tip: Make timely EMI payments (set auto-debit). Credit improves within 12–18 months. Track on cibil.com every 3 months.
Myth 5

"Multiple loan applications always lead to rejection."

Reality: Soft inquiries (pre-approvals) don't harm CIBIL. Only formal applications trigger hard inquiries. Checking eligibility with 2–3 banks via pre-approvals is safe.

Why this is dangerous

Borrowers apply to only 1 bank, miss competitive rates, and accept worse terms than available.

Practical Example: Harsh (Needs ₹8 Lakh)

Strategy
Conservative Approach
Applied to existing bank only.
Offer: 16% Interest.
Smart Approach
3 Soft Pre-approvals (SBI, HDFC, ICICI).
Chose ICICI @ 13.5%.
Saved ₹1.6 Lakh in interest.
Pro Tip: Get soft pre-approvals online first -> check rates -> formal apply to the best option.

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