By Apoorva Mandhani
While a personal loan can be an attractive option when you need short term liquidity, a few people still view it as a debt trap, in light of the various misconceptions floating around. So, the saviours that we are, we decided to debunk five of the most widely believed personal loan myths for you.
- The interest rates on personal loans are high
The average interest rate on a personal loan ranges between 12 to 14 percent. This doesn’t seem too high when compared with the credit card interest rates, which can be anywhere between 36 to 48 percent. Some banks in fact offer personal loans at interests lower than 11 percent. For your convenience, here is a table with the interest rates offered by a few banks:
|Bank||Personal Loan interest Rate||Processing Fee|
|HDFC Bank Personal Loan||Starting at 10.99%||Min 0.99%, Max 2.50% Up to Rs. 10,000|
|ICICI Bank Personal Loan||Starting at 10.99%||Starting from 0.99%, Up to 2.25%|
|Yes Bank||Starting at 10.75%||Starting at 0.99%, Up to 2%|
|Citibank||Starting at 10.99%||Up to 0.5%|
|Standard Chartered Bank||Starting at 10.99%||1.00%|
- Personal loans have no tax benefits
This has been believed for quite some time now. However, you can get tax benefits from a personal loan, depending on the final use of the money taken. So, when you take a personal loan for repair or renovation of your house or property, these can be considered as legal expenses for claiming tax deduction. This money can also be used towards down payment of your property and can be claimed as tax exemption. However, only the interest paid on the loan can be claimed as deduction, while the principal amount of the loan cannot be.
- Taking a personal loan is tedious and time-consuming
The claim is a myth now, although it wasn’t so a few years back. With the increasing affinity towards digital finance in India, personal loans can now be obtained before you even finish reading this article.
Nowadays, few digital bank services allow customers to get their eligibility verified instantly, by providing you with a fixed set of criteria. So, in order to be eligible, you must be within a certain age group (usually between 22 and 58 years of age), must be salaried – with a particular minimum monthly income, and have a good credit history. This, coupled with an easy online application process, shows that securing personal loans is not a tiresome process anymore. To add to the convenience, some banks also provide doorstep banking services, with a bank representative visiting your home or office for completion of the documentation process.
- Gold loan is always a better option than personal loan
Gold loans and personal loans are the two options which come in handy for credit-seekers, in times of urgent need. While both the loans are well-suited for short and medium term financial requirements, and offer several valuable benefits, a gold loan is long considered a better alternative to a personal loan. This is primarily due to the fact that interest rate of a gold loan is usually lower than that of a pure personal loan, and ranges anywhere between 11 to 15 percent.
However, it needs to be understood that you can only avail up to a certain percentage of the value of the gold that is offered as collateral, as per the LTV (or loan to value) ratio. Besides, as demonstrated earlier, a few lenders do offer attractive interest rates on a personal loan as well. Hence, financial prudence would call for an evaluation of all factors before declaring one better than the other.
- You can’t apply for a personal loan if you have existing loans
While there is no hard and fast rule that you cannot apply for a personal loan if you have existing loans, if does reflect on your ability to repay the debts. One way to counter this can be by using the debt consolidation facility through which you combine multiple debts into one. There are other ways as well, wherein you might have an option to transfer your debt to the concerned institution. You may compare such additional services offered before opting for a loan.
With these myths busted, you are now ready to embark on a well-informed journey of deciding if a personal loan would be the best for addressing your current financial needs.
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