When it comes to borrowing money, personal loans are one of the most popular financial tools available today. They are flexible, easy to access, and can be used for almost any purpose—from medical emergencies and weddings to education, home renovation, or even debt consolidation.
Yet, despite their usefulness, many people shy away from personal loans.
Why? Because myths and misconceptions have clouded the truth. These myths often
lead to missed opportunities or poor financial decisions.
In this guide, we’ll break down the top myths about personal loans
you should stop believing, while uncovering the facts you need to make
informed borrowing choices.
Myth 1: Personal Loans Are Only for
Emergencies
The Myth:
Many people assume that personal loans are only meant for emergencies like
hospital bills or urgent repairs.
The Reality:
While personal loans are indeed helpful in emergencies, they are not limited to
them. In fact, lenders allow borrowers to use personal loans for almost
anything, including:
- Wedding
expenses
- Travel
or vacations
- Higher
education
- Business
startup costs
- Debt
consolidation
A personal loan is a multi-purpose financial tool. The only
requirement is your ability to repay it on time.
Myth 2: You Need Perfect Credit to Get a
Personal Loan
The Myth:
There’s a common belief that unless you have a spotless credit history and a
very high credit score, you won’t qualify for a personal loan.
The Reality:
A good credit score does improve your chances of getting approved with
favorable interest rates. However, you don’t need a “perfect” score. Many
lenders today offer personal loans to individuals with average or even fair
credit.
Some non-banking financial companies (NBFCs) and digital lending
platforms also provide loans to those with lower credit scores, though the
interest rate may be higher. Improving your repayment history and lowering
outstanding debts can help in the long run.
Myth 3: Personal Loans Always Have High
Interest Rates
The Myth:
Some people avoid personal loans because they believe they’re too expensive
compared to other forms of credit.
The Reality:
Interest rates on personal loans vary widely depending on your credit profile,
lender, and loan tenure. For salaried individuals with stable incomes and good
credit scores, rates can be as low as 10–11% per annum.
In fact, personal loans often have lower interest rates than credit
cards, making them a better option for big expenses or debt consolidation.
Myth 4: Applying for a Personal Loan Will Ruin
Your Credit Score
The Myth:
Borrowers sometimes fear that applying for a personal loan will destroy their
credit score permanently.
The Reality:
This is only partially true. When you apply for a loan, lenders do a “hard
inquiry” on your credit report, which may slightly reduce your score. However,
the drop is temporary and minor.
If you repay the loan on time, your credit score actually improves over
time. Responsible borrowing is one of the best ways to build credit history and
increase your future borrowing capacity.
Myth 5: You Can’t Pay Off a Personal Loan
Early
The Myth:
Some borrowers think that once they take a personal loan, they must pay EMIs
for the entire tenure without any option of early repayment.
The Reality:
Most lenders allow prepayment or foreclosure of loans before the term ends.
While some may charge a small penalty, the savings on interest can be
significant.
Paying off your loan early not only reduces financial stress but also
improves your creditworthiness. Always check prepayment clauses before signing
your loan agreement.
Myth 6: Personal Loans Are Only for Salaried
Professionals
The Myth:
A widespread belief is that personal loans are exclusively for those with fixed
monthly salaries.
The Reality:
Personal loans are available to a wider group, including:
- Self-employed
individuals
- Freelancers
- Small
business owners
- Professionals
like doctors, lawyers, or consultants
Lenders may ask for additional documentation (like income proof, tax
returns, or business records), but self-employed individuals can certainly
access personal loans.
Myth 7: Getting a Personal Loan Is a Long and
Complicated Process
The Myth:
Many people think applying for a personal loan involves endless paperwork, long
bank visits, and weeks of waiting for approval.
The Reality:
With digital lending and fintech advancements, the process has become
incredibly simple. Today, you can:
- Apply
online through a bank or NBFC’s website.
- Upload
documents digitally.
- Get
instant approval within minutes.
- Receive
funds within 24–48 hours.
Technology has turned personal loans into one of the fastest financing
options.
Myth 8: Personal Loans Are Only for Large
Amounts
The Myth:
Some believe that personal loans are only useful if you need a very large sum
of money.
The Reality:
Personal loans can range from as little as ₹25,000 to as much as ₹40 lakh,
depending on the lender and your eligibility. Whether you need a small loan to
cover a minor expense or a bigger one for major commitments, personal loans are
flexible enough to suit all needs.
Myth 9: Personal Loans Come with Hidden Traps
The Myth:
Borrowers often assume that personal loans are full of hidden fees and traps
that make them dangerous.
The Reality:
Reputed lenders provide transparent terms. While there may be additional
charges like:
- Processing
fees
- Prepayment
penalties
- Late
payment charges
…these are clearly mentioned in the loan agreement. Reading the terms
carefully and clarifying doubts with the lender ensures there are no surprises.
Myth 10: Taking a Personal Loan Means You’re
Financially Irresponsible
The Myth:
There’s a stigma around borrowing, with some people believing that taking a
personal loan reflects poor money management.
The Reality:
This couldn’t be further from the truth. Personal loans, when used responsibly,
are smart financial tools. For example:
- Using
a loan for education is an investment in your future.
- Consolidating
high-interest debts into a personal loan reduces financial burden.
- Covering
unavoidable medical expenses through a loan provides peace of mind.
The key is to borrow wisely, not excessively.
How to Separate Myths from Facts
- Do
Your Research: Compare lenders, interest rates, and
eligibility before applying.
- Use
Trusted Sources: Don’t rely on word-of-mouth; check
verified financial websites.
- Read
the Fine Print: Always go through loan terms carefully.
- Consult
Experts: Speak to financial advisors if unsure
about your decision.
Why Believing Myths Can Cost You
Falling for these myths can:
- Stop
you from accessing funds when you really need them.
- Push
you toward costlier credit options like credit cards.
- Cause
unnecessary stress and hesitation in achieving life goals.
Knowledge is power. By separating fact from fiction, you empower
yourself to make better financial choices.
Practical Tips to Use Personal Loans Wisely
- Borrow
only what you need, not the maximum you’re eligible for.
- Use a personal
loan EMI calculator to estimate repayments.
- Always
keep an emergency fund separate from your loan.
- Prioritize
timely repayments to build your credit score.
- Consider
prepayment once you’re financially stable.
Personal
loans are neither dangerous nor complicated—they are practical tools when used
with caution and planning. Myths like “personal loans are only for emergencies”
or “only salaried people can apply” stop many individuals from taking advantage
of this flexible financing option.
The truth is simple: with transparent terms, responsible repayment, and
careful planning, personal loans can help you achieve your goals without
unnecessary stress.
So, the next time you hear someone repeating these myths, you’ll know
better. Don’t let misconceptions hold you back—make informed decisions and use
personal loans as a stepping stone toward financial progress.
