5 Personal Loan Myths Which Are Not True At All

5 Personal Loan Myths Which Are Not True At All

Personal loans have become one of the most common financial products in India. They are simple to apply for, require minimal documentation, and provide quick access to funds without needing collateral. Whether it’s covering medical bills, paying for a wedding, renovating a home, or consolidating debts, personal loans are often the go-to solution.

However, in spite of their popularity, there are a few myths regarding personal loans that prevent borrowers from taking them effectively. Misinformation propagated through word of mouth, outdated information, or partial knowledge can dissuade individuals from taking loans, even if it would be the smartest financial choice for them.

In this blog, we will deconstruct the 5 largest personal loan myths that are completely untrue, discuss why they prevail, and reveal the actual truth about them. By the time you’re done reading, you’ll have a better idea of how personal loans actually work — and how they can assist you in meeting your financial objectives responsibly.

???? Myth 1: “Personal Loans are Only for Emergencies”

This is likely the most prevalent personal loan myth. Most people think you must take out a personal loan during an economic crisis, e.g., medical emergency, sudden expenses, or for some emergency travel.

Why this myth persists:

Historically, personal loans used to be sold as emergency products since they are not secured and sanctioned quickly compared to other loans. Gradually, individuals started linking personal loans with emergencies alone.

The reality:

Personal loans are multi-purpose loans. Banks and NBFCs permit borrowers to utilize the funds for nearly any legitimate purpose. You will not be required to furnish receipts or usage proof, unlike some special loans (such as education loans or home loans).

???? Below are some typical applications of personal loans outside of emergencies:

Wedding expenses – paying for event expenses, jewellery, or overseas weddings.
Travel and vacations – funding an international vacation without dipping into savings.
Home renovation – interior upgrades, painting, or purchasing new furniture.
Debt consolidation – merging multiple credit card balances into a single manageable EMI.
Education and skill development – funding short-term courses, certifications, or study abroad.
???? Key point: Don’t limit yourself. A personal loan is not only a “last resort” but also a versatile tool that can assist with both expected and unexpected expenses.

???? Myth 2: “Only People with High Income Can Get a Personal Loan”

Yet another common myth is that personal loans are reserved only for individuals with huge salaries or thriving businesses. Most middle-class or self-employed people do not even apply because they feel they will be turned down.

Why this myth persists:

Historically, banks favored high-income earners due to their repayment ability. This gave the perception that personal loans are for just the affluent.

Reality:

Today, lenders such as NBFCs give personal loans to a broad category of applicants. More than high salaries, what is important is your credit score and repayment ability. People with low salaries are also eligible if they have a steady job and good repayment history.

???? Actual considerations for a lender approving a personal loan:

CIBIL score (ideally 700+)
Steady employment track record (minimum 1–2 years)
Current debts and EMIs
Repayment history (credit card payments, past loans)
So even if your income is middle-class, you can obtain a personal loan — at times with flexible repayment options.
???? Key takeaway: A personal loan isn’t reserved for people with high incomes. Lenders care less about your income and more about your financial responsibility and repayment capacity.

???? Myth 3: “Personal Loans Always Have Very High Interest Rates”

One of the largest concerns that people harbor is that personal loans are “too costly.” The presumption is that interest rates are prohibitively high, rendering them unsustainable in comparison to other forms of loans.

Why it’s a myth:

Because personal loans are non-secured (no collateral required), lenders obviously charge a little more compared to secured loans such as home or gold loans. This gave rise to the perception that personal loans invariably have very high interest rates.

The reality:

Your credit profile determines the interest rate you receive. Borrowers with excellent credit scores, consistent incomes, and minimal debts usually receive extremely attractive rates. Actually, personal loan rates are usually lower than credit card rates, which can reach as high as 36–40% per annum.

???? Example:

Personal loan interest rate: 10%–18% per annum (subject to profile)

Credit card revolving interest: 30%–40% per annum
Clearly, a personal loan can actually be a cheaper borrowing option compared to carrying high-interest credit card debt.
???? Key takeaway: Don’t assume personal loans are always expensive. Your CIBIL score and repayment history can unlock much better interest rates.

Myth 4: “Taking a Personal Loan Will Hurt My Credit Score”

There are individuals who shy away from personal loans assuming that it will negatively affect their CIBIL score. They are concerned that merely taking a loan will make them less creditworthy.

Why this myth exists:

Lenders have mistaken the effect of a “hard inquiry” (when a lender pulls your credit score upon application) with actual default on a loan. Inquiries can lead to a small, short-term drop but do not kill your score.

The reality:

A personal loan may enhance your credit score if you repay your EMIs on time. It proves that you can manage debt responsibly to lenders. But delay in payments or defaulting on your loan reduces your score.

???? Example:

Borrower A avails a personal loan of ₹2 lakh and repays EMIs regularly → Credit score increases.
Borrower B avails of the same loan but defaults on several EMIs → Credit score plummets drastically.
???? Takeaway: A personal loan is not harmful to your credit score. Rather, it can strengthen your credit history and financial reputation if utilized judiciously.

???? Myth 5: “NBFCs Are Not Safe for Personal Loans”

Most borrowers feel that banks alone are safe lenders and that borrowing from an NBFC (Non-Banking Financial Company) is not a safe bet.

Why there is this myth:

People did not know completely how NBFCs functioned in the past. Because NBFCs are not “traditional banks,” they were mistakenly thought of as less secure.

The reality:

All RBI-registered NBFCs are governed strictly. They adhere to the same standards of compliance and security as banks. Actually, NBFCs are more adaptable and quicker in loan processing than banks.
For instance, Manikaran Credit and Leasing Company Pvt. Ltd., established in 1994, is a registered NBFC with RBI. With trust spanning decades, it has benefited thousands of customers with hassle-free, transparent, and speedy personal loans.
???? Key takeaway: Taking a loan from an RBI-approved NBFC is secure, hassle-free, and trustworthy. Always verify that the NBFC is RBI-approved before applying.

Final Thoughts

Personal loans are erroneously misunderstood due to half-truths and old myths. These myths — whether related to steep income levels, steep interest charges, or dangers with NBFCs — may deter borrowers from making the most of a helpful financial tool.
By removing these myths, we can unmistakably realize that personal loans are:
Flexible (can be utilized for various purposes)
Accessible (not exclusive to the affluent)
Affordable (economic rates with solid credit history)
Beneficial for credit rating (if paid promptly)
Secure with NBFCs (provided they are RBI-registered)
Ultimately, a personal loan can be a good financial option if availed responsibly and paid promptly. The secret is to shop around, read the terms carefully, and calculate your repayment ability.
So the next time you hear all these myths from someone, you will know the actual truth. Don’t let false information hold you back from making your dreams come true with the assistance of a well-structured personal loan.

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myth about personal loansMyth 4: “Taking a Personal Loan Will Hurt My Credit Score”

A few individuals do not apply for personal loans since they fear their CIBIL score will suffer. They are concerned that availing a loan alone will make them less creditworthy.

Why this myth exists:

Borrowers confuse the impact of a “hard inquiry” (when a lender checks your credit score during application) with an actual loan default. While inquiries may cause a small, temporary dip, they do not destroy your score.

The truth:

A personal loan can even enhance your credit score if you make your EMIs on time. It indicates to lenders that you are capable of managing debt. Conversely, defaulting or missing payments on your loan will lower your score.

???? Example:

Borrower A avails a personal loan of ₹2 lakh and makes regular EMIs → Credit score increases.
Borrower B avails the same loan but defaults on several EMIs → Credit score lowers drastically.
???? Important point to note: A personal loan is not detrimental to your credit score. Rather, it can establish your credit history and financial credibility if used judiciously.

???? Myth 5: “NBFCs Are Not Safe for Personal Loans”

Most borrowers feel that banks alone are safe lenders and availing a loan from an NBFC (Non-Banking Financial Company) is unsafe.

Why this myth prevails:

In the past, individuals did not have a proper understanding of how NBFCs operate. Because NBFCs are not “traditional banks,” they were mistakenly believed to be less secure.

The reality:

All RBI-registered NBFCs are heavily regulated. They operate under the same compliance and security protocols as banks. Moreover, NBFCs tend to be more adaptive and quicker in loan processing than banks.
For instance, Manikaran Credit and Leasing Company Pvt. Ltd. established in 1994 is an RBI-registered NBFC. With three decades of trust, it has assisted thousands of clients by issuing hassle-free, transparent, and instant personal loans.
???? Important takeaway: Taking a loan from an RBI-approved NBFC is safe, convenient, and reliable. Ensure that the NBFC is RBI-approved before applying.

Last Thoughts

Personal loans are misunderstood due to half-truths and old myths. These myths — high income requirements, high interest rates, or complications with NBFCs — can prevent borrowers from benefiting from a convenient financial tool.
By laying these myths to rest, we can easily note that personal loans are:
Flexible (can be utilized for various purposes)
Accessible (not limited to the rich)
Affordable (reasonable interest rates with favorable credit record)
Beneficial to credit score (provided repayments are made on time)
Safe with NBFCs (provided they are RBI-registered)
Ultimately, a personal loan can prove a wise financial decision if borrowed responsibly and repaid in a timely manner. The secret lies in comparing lenders, reading the fine print, and gauging your repayment capability.
So, the next time somebody tells you these myths, you’ll know the actual truth. Don’t let falsehoods deter you from realizing your dreams with the assistance of a well-planned personal loan.

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personal loan myths in India
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