5 Common Myths About Personal Loan Eligibility

Personal Loans are credit instruments that help people finance major expenses, from home repairs to wedding costs, often at lower interest rates than using credit cards. These loans deliver lump sum cash flow to borrowers called principal, which they pay back to the lending institution in regular instalments with interest. 

Due to the latest technological advancements, loan applications now take less than a few minutes to complete. Those who fulfil the lending institution’s Personal Loan eligibility criteria can get their disbursal in a few hours and obtain a loan customised to their needs.

As with other financial decisions, obtaining an instant loan involves multiple crucial decisions, like which NBFC to approach, which loan scheme is the right to select, and how to qualify for the best loan offer. While making these decisions is crucial, it is equally important to bust the myths around loan eligibility as they may fog a loan seeker’s judgment while approaching an NBFC. Here is a list of five common myths about personal loan eligibility

Myth #1: One Needs to Pledge Collateral to Obtain a Personal Loan

Aspiring borrowers often get confused between secured and unsecured loan options. Secured loans like home and car loans take the asset as collateral against the loan amount. In the case of a Home Loan, the home itself is the collateral. If the borrower falls behind on EMI payments and defaults on the loan even after several reminders, the lending institution repossesses the house to compensate for their loss. However, Personal Loans are unsecured with no collateral requirement. That means loan seekers do not need to pledge any asset as collateral to obtain the required funding. 

Borrowers can choose a repayment tenure according to their monthly budget and repay the loan conveniently without stressing their finances. So, there is no risk of losing an asset or property even if the borrower fails to repay the loan. However, a loan default will attract legal action against the borrower and also reduce their creditworthiness for future loan applications.

Myth #2: Existing Loan Borrowers are Not Eligible for New Personal Loans 

Another common misconception is that an existing loan borrower is not eligible for new Personal Loans. It is a myth because an individual can apply for new loans using the same Personal Loan eligibility criteria as first-time borrowers. 

As long as they maintain a consistent repayment history and a decent credit score, aspiring borrowers do not face any issues getting new loans. However, it is important for the borrower to evaluate their repayment capacity and ensure they can pay their new loan EMIs on time. NBFCs focus on an applicant’s monthly income, regular expenses, and repayment capacity while evaluating their eligibility rather than checking the number of loans they are currently handling.

Myth #3: Low Credit Score Means No Approval

An applicant's credit profile actually makes a big difference in an individual’s Personal Loan eligibility. However, the credit score is not the most accurate parameter to assess an individual's capacity to meet their obligations. The credit score dictates where they might succeed while looking for a loan. Therefore, a loan seeker must focus on building strong credit scores and credit profiles while looking for a loan. 

Most lending institutions review these 3-digit numbers to evaluate loan applications. The credit score demonstrates a loan seeker's past credit behaviour in making their lending decisions. So, maintain a good credit score and build a strong credit profile to obtain a Personal Loan at favourable terms and conditions. Top NBFCs require a credit score of 630 or above to approve loan applications. However, poor credit rating does not necessarily lead to loan rejection. 

The score could be down due to financial stress in the past. However, financial institutions focus on the applicant’s repayment capacity based on their income and current financial obligations. Those with regular incomes and stable jobs might get approval despite a lower credit score than required. But, the NBFC may charge a higher interest rate for taking a bigger risk in lending money to such borrowers.

Myth 4: Qualifying for the Lowest Interest Rate Personal Loan is the Best Deal

The personal loan interest rate is one of the most significant factors that help decide a loan deal. However, it is not the only determinant while making the final choice. While checking the interest rates gives an idea of the total loan cost, being eligible for a low-interest Personal Loan is not always the best deal. Aspiring borrowers must get quotes from different lending institutions and compare their loan plans based on several other factors, including processing charges, customer service, repayment options, the application process, approval speed, eligibility and documentation requirements, etc. A Personal Loan EMI calculator helps find the best loan plan with budget-friendly EMIs.

Myth 5: Every Applicant is Not Necessarily Eligible for an NBFC’s Maximum Loan Offer

Each lending institution has a maximum limit to the amount they can offer as Personal Loans. However, every loan applicant might not be eligible for the maximum loan amount on offer. NBFCs determine each applicant’s Personal Loan eligibility based on several factors, including their income, DTI ratio, credit score, age, employment history, etc. 

Those with a high income, fewer financial obligations, and a decent credit score qualify for bigger loan amounts than others. Therefore, an applicant must assess different NBFCs’ eligibility criteria and documentation requirements to see if they are eligible for their maximum loan offer. 

Now that we have busted these myths, it's safe to say that one may easily apply for Personal Loans without any confusion or misconception. Applying for a Personal Loan is no longer an arduous process. Technologically advanced NBFCs make them available online in a fast and hassle-free manner. Moreover, they approve loans quickly and disburse them instantly without taking long after approval. However, one must be aware of these myths and avoid falling for them to make an informed borrowing decision. Check Personal Loan eligibility before applying online to get the desired funding.

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