Personal loans have become a popular solution for managing various financial needs in today’s fast-paced world. A personal loan can offer the flexibility and support you need to meet your financial requirements. However, misconceptions about personal loans lead to confusion and poor financial decisions. This blog clears up some of the most common myths about personal loans, helping you make informed financial choices.
A prevalent myth about personal loans is that they should only be used for emergencies, such as medical expenses or urgent situations that require money as financial assistance. This misconception limits the potential of personal loans and the accessibility to individuals who need money for various purposes.
Reality: Personal loans are very flexible. It means you can take a personal loan for planned expenses, not just for emergencies. You can borrow according to your needs and preferences, making personal loans a convenient tool for managing your finances. They can be used for a wide range of purposes, including:
DMI Finance offers personal loans for all the above-mentioned purposes and many more.
Many believe that having a low credit score means not qualifying for a personal loan. While a good credit score is important, it is not the only factor lenders (Banks and NBFCs) consider.
Reality: While your credit score plays a role, some lenders also consider other factors, such as your monthly income, employment status, existing debt obligations, and overall repayment capacity. Hence, people with a zero credit history or those who have never taken out a loan or credit card can still get a personal loan based on these factors.
Personal loans are often assumed to be available only to salaried individuals, excluding freelancers, business owners, and those with variable incomes.
Reality: Personal loans are accessible to both salaried and non-salaried individuals. Whether you’re a freelancer, self-employed, or a business owner, you can still apply for a personal loan, provided you meet the lender’s basic eligibility criteria for a personal loan, such as a minimum monthly income. DMI Finance offers personal loans to salaried individuals, self-employed individuals, and business owners with a minimum monthly income of ₹25,000.
A common belief is that once a personal loan is taken, it cannot be repaid before the decided tenure, and you cannot save the interest amount by making prepayments.
Reality: Many lenders allow personal loan prepayment after a specific period (usually 6 months), although it may come with a prepayment penalty or charge. DMI Finance also allows its borrowers to prepay their personal loans. However, you should calculate how much you can save from the prepayment, considering your specific situation, as not all solutions work for everyone.
Some believe they cannot take another personal loan if they are already repaying a loan. This might prevent individuals from accessing funds when needed.
Reality: It is possible to take out another personal loan, even if you are already repaying an existing one. Your repayment capacity decides whether you can take one more loan or not. Lenders assess your ability to repay using the EMI-to-income (EMI to NMI) ratio to decide whether or not you can afford an additional loan.
Your EMI-to-NMI ratio is the percentage of your monthly income that goes towards your monthly EMI (including the loan you applied for). If your monthly income is ₹50,000, and ₹25,000 goes towards the EMIs, then your ratio is 50%. Most lenders prefer applicants with a 50-60% EMI-to-NMI ratio.
There’s a myth that taking a personal loan can damage your credit score, especially if you take more than one loan.
Reality: If managed well, a personal loan can help improve your credit score by diversifying your credit mix. Making timely payments and managing the loan responsibly can show lenders your ability to handle debt, improving your score over time. However, any loan can damage your credit score when you do not pay the EMI on time.
Some individuals believe that banks are the only institutions that offer personal loans.
Reality: Non-banking financial companies (NBFCs) are also reliable sources for personal loans. They often offer more flexible terms than banks, with quicker approval times and fewer paperwork requirements, making NBFCs increasingly popular. DMI Finance offers personal loans with a hassle-free process, easy approval, and the loan amount is directly transferred to your bank account, ensuring you have the money when needed.
Also Read: Tax benefits of personal loans
Personal loans can be a great financial tool when used wisely. Unfortunately, many myths and misconceptions surround them, preventing individuals from making informed choices. By understanding the facts, you can make smarter decisions.
Before applying for a personal loan, consider your eligibility, loan requirements, and the terms offered by various lenders. DMI Finance provides various flexible loan options, with competitive interest rates and hassle-free approval processes designed to meet your financial needs.
1. Is it true that personal loans have very high interest rates?
No, not always. Personal loan interest rates depend on your credit score, income, and the lender. If you meet the eligibility criteria, you can get competitive rates, especially from trusted NBFCs like DMI Finance.
2. Will applying for a personal loan hurt my credit score?
Only slightly and temporarily. When you apply for a loan or credit card, the lender requests your credit report from the credit bureau, which is considered a hard inquiry that temporarily lowers your credit score. However, timely repayments of a personal loan can help improve your credit score over time.
3. Can I use a personal loan only for emergencies?
That’s a myth. Personal loans can be used for a variety of purposes, including travel, education, weddings, home renovation, or even debt consolidation. There are no restrictions on usage unless specified by the lender.
4. Do I need a very high income to get a personal loan?
Not necessarily. Many lenders, including NBFCs such as DMI Finance, offer personal loans to individuals with a minimum monthly income of ₹25,000, provided other eligibility criteria are met.
5. Is collateral always required for a personal loan?
No. Personal loans are unsecured loans, which means you don’t need to pledge any assets or security to get approved.
6. Is it better to avoid personal loans altogether?
Not true. Personal loans can be a smart financial tool if used responsibly for planned expenses or emergencies. What matters most is that you repay on time.
7. Can I repay a personal loan early without any penalty?
Some lenders allow prepayment without penalties, while others may charge a fee. Always review the loan terms carefully before making a decision.
8. Will I be rejected if I already have another loan?
Not always. If you maintain a healthy debt-to-income ratio and a credit score, lenders may still approve your application, even if you have an existing loan.
9. Do self-employed individuals get personal loans?
Yes, both salaried and self-employed individuals can apply for personal loans. However, the required documentation and income proof may be different.
10. Does a personal loan take a long time to get approved?
Not anymore. With NBFCs like DMI Finance, the personal loan approval process is digital, easy, paperless, and often completed within 24–48 hours.
