Personal loans are one of the most widely used credit products in India today. From young professionals to business owners, many people rely on them to fund big expenses or manage cash flow. Unlike secured loans, personal loans don’t require collateral, making them more accessible.
Despite their popularity, personal loans are often misunderstood. Misconceptions about eligibility, interest rates, and usage can discourage people from applying or lead them to make poor decisions. To make informed choices, it’s important to separate fact from fiction.
Let’s explore and bust some of the most common myths around personal loans.
Myth 1: Personal Loans Are Hard to Qualify For
The misconception: Many people assume that only individuals with very high salaries or perfect credit scores can get personal loans.
The reality: Most lenders have relatively accessible criteria. A steady monthly income (around ₹30,000 or more) and basic KYC documents are often enough to qualify. Since personal loans are unsecured, there’s no need to pledge property, gold, or other assets.
Why this myth persists: Traditional banking often gave the impression that only “prime” customers could borrow. With the rise of digital lending, the bar has lowered without compromising on credit checks.
How to qualify more easily:
- Keep your CIBIL score above 700 by paying bills and EMIs on time.
- Maintain a healthy bank balance and avoid frequent overdrafts.
- Keep your debt-to-income ratio (monthly EMI vs. monthly salary) below 40%.
Example: A salaried professional earning ₹35,000 per month with a credit score of 720 can often get a loan of ₹2–3 lakh within 1–2 days, provided documents are in order.
Myth 2: Only Salaried People Can Apply
The misconception: Personal loans are only meant for salaried employees with payslips.
The reality: Both salaried and self-employed individuals can apply. The only difference lies in proof of income. Salaried individuals usually submit salary slips and bank statements, while self-employed borrowers may provide income tax returns (ITRs), GST filings, or audited financials.
Self-employed borrowers should note:
- Lenders may look at business turnover and profit consistency.
- If your income is seasonal, showing ITRs from the last two years can help.
- Some lenders even offer dedicated MSME or business loan products with higher limits (₹5–10 lakh or more).
Example: A freelance graphic designer earning ₹50,000 per month through online payments can still qualify for a personal loan by showing consistent invoices and bank credits.
Myth 3: Personal Loans Always Have High Interest Rates
The misconception: Many borrowers think personal loans are unaffordable because they assume the rates are always “sky-high.”
The reality: Interest rates vary depending on the lender, loan amount, and applicant profile. Well-qualified borrowers can access rates starting at around 11–12% per annum. Compare this with credit cards, which often charge 30–36% interest annually.
Factors influencing interest rates:
- Credit score: Higher scores usually get lower rates.
- Employer category: Reputed company employees may get preferential rates.
- Loan tenure: Longer tenures may reduce EMI but can slightly increase total interest paid.
- Debt history: Past repayment behavior heavily influences offers.
Tips to get lower rates:
- Apply with a high credit score (750+).
- Keep existing debt low.
- Compare offers across banks, NBFCs, and fintech lenders.
Example: A borrower with a score of 770 applying for a ₹3 lakh loan might get a rate of 12% from one lender and 14.5% from another. The difference, though small, can save thousands over the tenure.
Myth 4: The Process Involves Too Much Paperwork
The misconception: Applying for a loan means filling long forms, submitting stacks of documents, and waiting weeks for approval.
The reality: Digital lending has changed the landscape completely. Today, you can apply for a loan online or through an app, upload documents digitally, and get approval in as little as a few hours. Funds are typically disbursed within 24–72 hours.
Common documents needed:
- PAN card
- Aadhaar card or other address proof
- Salary slips (for salaried) or ITR (for self-employed)
- Bank account statements (usually 3–6 months)
Why this is better for borrowers:
- No need to visit branches.
- No physical paperwork or notarization.
- Faster turnaround and transparent tracking.
Example: Someone applying online during a weekday morning could see the loan amount in their bank account by the next evening, provided documents are correct.
Myth 5: Personal Loans Are Only for Emergencies
The misconception: Personal loans are only useful during crises like hospital bills or sudden expenses.
The reality: Personal loans are multipurpose. They can be used for emergencies, yes, but also for planned expenses or financial restructuring. Many lenders even design specific products for popular needs.
Common uses of personal loans:
- Medical expenses: Quick access to funds for healthcare.
- Wedding loans: Covering venue, décor, catering, and more.
- Travel loans: Funding holidays abroad or domestic trips.
- Home renovation loans: For upgrades, interiors, or repairs.
- Debt consolidation: Replacing multiple high-interest EMIs with a single, manageable loan.
- Rental deposit loans: Helping tenants manage large upfront deposits.
Example: Instead of using a credit card for a ₹2 lakh home renovation, a borrower can take a personal loan at 12% interest, paying lower EMIs over 24 months.
Final Note
Personal loans are one of the most flexible and accessible credit options available today. The myths surrounding them often discourage borrowers unnecessarily. With the right approach — maintaining a good credit score, comparing rates, and borrowing responsibly — they can be a practical financial tool.
👉 If you’re exploring options, LoanTap provides flexible personal loans through its loan app with transparent terms and quick processing.
FAQs About Personal Loans
1. What documents are required for a personal loan?
Typically, PAN, Aadhaar or address proof, income proof (salary slips/ITR), and recent bank statements are sufficient.
2. How long does disbursal take?
Most lenders process applications within 24–72 hours if documents and eligibility are in order.
3. Can I prepay my loan?
Yes, many lenders allow prepayment after a minimum lock-in period (often 6 months). Always check prepayment charges before signing.
4. What is the minimum income to qualify?
While it varies, many lenders set the bar at around ₹25,000–₹30,000 monthly take-home income.
5. Does applying for multiple loans hurt my credit score?
Yes. Every application generates a hard inquiry, which can lower your score. Compare lenders first, then apply selectively.
