Imagine your friend, Ravi, wanted to take a loan to renovate his small shop. He heard from others that loans are hard to get, require collateral, and can leave him drowning in debt. Afraid of these risks, he delayed his shop’s renovation for years. But when he eventually went researching, he found that they were just myths. Getting a personal loan was much easier and safer than he thought.
So let’s break down the truth about personal loans. Clear out some myths so that he may not fall into the same misconceptions as Ravi.
What Are Personal Loans?
This is an unsecured loan by which you can borrow from a bank or lender without pledging any asset as security, such as your house or car. Over the past 6 months, banks and non-bank lenders have increasingly been selling unsecured retail loans to asset reconstruction companies.
For example, Ravi took a personal loan of ₹1,00,000 for his shop renovation without offering any collateral. He agreed to repay this in monthly instalments over two years.
Common Myths About Personal Loans
| Myth | Truth |
| Loans Require Collateral | Most personal loans are unsecured, and you don’t need to pledge any assets. |
| Interest Rates Are Too High | Personal loan rates are often lower than credit card rates. |
| Approval Takes Forever | Most lenders allow online applications, and approval can take as little as 24 hours. |
| Only People With Good Credits Can Apply | Lenders also consider income and repayment ability. Even those with average credit scores can qualify. |
How Personal Loans Work
Let’s understand the process with Ravi’s story:
- Application: Ravi filled out an online form with his income details and purpose for the loan.
- Approval: Within a single day, the lender verified his documents and approved the loan.
- Disbursal: ₹ 1,00,000 was credited to his bank within 48 hours.
- Repayment: Ravi paid back ₹ 4,500 every month for two years, including interest.
Why Personal Loans Are Not Just for Emergencies
Loans are primarily believed to be for use in an emergency. However, a personal loan could serve the following needs wisely:
- Debt Consolidation: combine several debts into one easy payment.
- Education: paying for courses or training for career growth.
- Vacations or Big Purchases: paying for memories worth keeping in equal payments.
For example, Anjali took a personal loan of ₹50,000 to buy a computer for her work from home. She made ₹10,000 per month from it, which helped pay back the loan in six months as income increased.
Tools That Help Compare Loans
To find the best loan, Ravi compared lenders based on:
- Interest Rates: Looked for a rate around 10%.
- Processing Fees: Some charged ₹500, while some charged up to ₹2,000.
- Repayment Flexibility: He took a no-penalty early repayment clause plan.
Cost of Personal Loans
Here’s how loan interest impacts total repayment:
| Loan Amount | Interest Rate | Tenure (Years) | Monthly EMI | Total Repayment |
| ₹1,00,000 | 10% | 2 | ₹4,607 | ₹1,10,568 |
| ₹1,00,000 | 15% | 2 | ₹4,849 | ₹1,16,376 |
The table shows how a lower interest rate can save money over time.
Why Knowing the Truth Is Important
Understanding personal loans helps you make smarter financial decisions. For example,
- Ravi renovated his shop, which attracted more customers and increased his profits.
- Anjali’s computer helped her start a business and repay her loan early.
By knowing the facts, they turned loans into tools for growth, not stress.
Conclusion
Personal loans are not as complicated or risky as they may seem. Myths like “you need collateral” or “approval is difficult” can discourage you unnecessarily. When used responsibly, personal loans can help you achieve goals like home renovations, debt repayment, or starting a business.
So, whether you’re like Ravi, improving your shop or Anjali, starting your dream business, personal loans can provide the support you need—without falling for the myths!
