A loan is a great option for those seeking funds to meet their finance and credit needs.
Many banks provide personal loansat competitive interest rates. However, some individuals are wary of borrowing due to the myths surrounding such loans. Following are ten common misconceptions about loans and the truth behind such myths.
1. Only salaried individuals are eligible for loans
While many have the pre-conceived notion that loans are provided only to salaried individuals, the fact is that self-employed individuals, Non-Resident Indians, and businessmen may also borrow a loan.
2. Interest rates on loans are high
The truth is the rate of interest charged towards loans is lesser than that levied on credit cards. You may get the best interest rate by comparing numerous banks. Choose the one offering the most competitive interest rate.
3. Loans do not offer tax benefits
The good news is that some loans provide tax benefits, based on the use of finance borrowed. As per Section 24(b) of the Income Tax Act, 1961, you may enjoy tax deductions on the interest paidon loans used for purchase of residential property or for renovation purposes. If you have utilized your loan for higher education, you may also claim tax benefits on the interest paid on the loan.
4. Loans are difficult to obtain
Many believe that getting a loan approval is difficult. This is not true. Banks these days offer lenient eligibility criteria to help individuals secure a loan easily. You may check the bank’s personal loan eligibility criteriato improve your chances of getting a loan.
5. It is not important to check credit score
Banks check your credit score to determine your financial position. A higher credit score indicates a greater ability to repay and hence it improves your chances of getting a loan approved. You may also negotiate for a better interest rate and competitive terms if you have a good credit score.
6. Borrowing a higher amount is advisable
Many people borrow the amount they are eligible for, instead of borrowing how much is needed. Borrowing more than you are able to repay will strain your finances in the long run. Hence, it is necessary to assess your credit needs and borrow accordingly.
7. Personal loans may be used only for personal reasons
You may not only use a personal loan for personal reasons, but also for numerous other purposes such as establishing your business or consolidating your existing debt.
8. Extensive documentation is required
Quite contrary to the common misconception of extensive paperwork, you need to submit only basic documents to avail of a loan. These include duly-filled application form, identity proof, residence proof, income details, and bank account statement, besides others.
9. Online application is a tedious procedure
In this era of digitalization, applying for a loan onlineis simple and convenient. You may browse the Internet and find loan-related information on the lender’s website. You may also apply for a loan anywhere, anytime.
10. A longer tenure is a good option
An extended loan tenure means that you have to repay a greater amount due to higher interest rate. Hence, consider borrowing for a shorter term if your financial position allows you to pay higher monthly installments.
Individuals have the tendency to believe in pre-conceived notions without verifying the facts. Keep the aforementioned myths and facts in mind and make a well-informed borrowing decision.