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‘Simplify Finance for Everyone.’ This is the common goal of our team, as we try to explain any topic with relatable examples. From personal to business finance, managing EMIs to becoming debt-free, we do extensive research on each and every parameter, so you don’t have to. Scroll up and have a look at what 15+ years of experience in the BFSI sector looks like.
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Sheetal is a freelance designer. She required ₹2.5 lakhs for upgrading her work setup. Her friend advised her to not use a personal loan and use her credit card. She followed her friend’s advice. In six months, she paid around ₹18,000 as interest.
If she had opted for a personal loan at 11.5% per annum, she would have paid just ₹7,125 in interest. Sheetal ended up spending ₹10,875 more due to wrong advice.
Personal loans are helpful financial tools. But most of you still avoid them or make costly mistakes because of myths. In this blog, we will look at some common myths that could cost you money too.
This is not true. You can apply if you are self-employed such as:
Your lender will check your:
Most of us get confused about whether we need to provide any collateral for such loans or not. So, you should always remember that personal loans are unsecured loans. You don’t have to provide gold, property, or any asset as security.
You need to provide collateral only for secured loans like a loan against property or gold loan, not for personal loans.
If you apply to too many banks at once, it can harm your credit score. Your every enquiry is recorded. The following is the impact of multiple applications on credit score:
Applications Within a Month | Effect on Score |
1 to 2 | No major impact |
3 to 5 | Slight dip in score |
6 or more |
It is true that a longer tenure will reduce your monthly EMI. But it will also increase the total interest you will pay. You should choose a tenure that you can manage comfortably.
The following is the loan cost based on tenure for Nidhi’s loan of ₹3 lakhs at 12% p.a.:
Tenure | Monthly EMI | Total Interest Paid |
2 years | ₹14,130 | ₹39,120 |
3 years |
If Nidhi opts for 5 years tenure then she will have to pay ₹61,080 more in interest compared to a 2 years tenure.
Most of your banks allow you to prepay your loan after 6 to 12 months. Some charge 2% to 5% of the outstanding amount, while others don’t charge at all.
Loan Amount | Tenure | Prepaid After | Interest Saved |
₹3 Lakhs | 3 years | 12 months | ₹13,275 |
Even if you prepay part of your loan it will help you save a large amount.
Most of us assume that a pre-approved personal loan offer means money will be transferred instantly to our account without any further checks. But it is not true.
Pre-approved simply shows that your bank has screened your basic financial history and found you eligible in principle. The final approval still depends on a fresh review of your:
Step | What Happens? |
Pre-approval is sent | Based on your earlier income, credit, or account use. |
Application submitted | Bank asks for updated documents. |
Re-verification |
Lender checks your employment, salary, and obligations.
Final sanction and disbursal
Based on your updated eligibility and documents.
Loan features are not the same for everyone, it varies from person to person. Your interest rate, processing charges, and approval amount depend on several factors:
Score drops by 20 to 30 points
₹58,488 |
5 years | ₹6,670 | ₹1,00,200 |
₹5 Lakhs
5 years |
24 months |
₹28,000+ |
*T&C Apply
Applicant | Monthly Income | Score | Interest Rate |
Neha (engineer) | ₹60,000 | 780 | 10.5% |
Amit (freelancer) | ₹45,000 | 710 | 13.5% |
Raj (retired) | ₹40,000 | 690 | 15% |
It is not true. Interest rates are based on your:
If your credit score is high, you may get a much lower rate.
It is not only for your urgent needs. You can use it for planned expenses for too like:
It does not affect your credit score unless you miss repayments. In fact, timely EMIs can improve your score over time.
If you are planning to get a personal loan then it is necessary for you to get all details about it. This will help you avoid half-truths and you will be able to make a sound financial decision.
Believing myths like "you must be salaried" or "loans are always expensive" can cost you dearly. As in Sheetal’s case, the wrong choice led to over ₹10,000 in unnecessary interest.
You must not make any rushed decision and take time to:
1. Can I get a second personal loan before repaying the first?
Yes, if your repayment capacity allows.
2. Will a personal loan lower my credit score?
Not if you repay on time.
3. Are interest rates always high?
No, rates depend on your credit score and income.
4. Is collateral needed for a personal loan?
No, these are unsecured loans.
