All the knowledge that is half known always leads to the creation of myths, and myths spread faster than the reality. Many of us have probably witnessed such a situation before, especially right at the mention of personal loans – and with a good reason. Outdated stories have created myths for the over the years now. Through this post, we wish to debunk all those misconceptions people may have to help you have a better clarity.
Let’s probe some of these facts and differentiate them from the myths around personal loans:
A personal loan is meant for personal reasons only
This is the most commonly heard and believed myths due to which people hesitate to apply for a personal loan. The way the name suggests, most of the people assume that personal loan can be utilized only for personal reasons. While the truth is, personal loan can be utilized for any purpose that serves you with an immediate financial assistance, possibly a medical emergency, education, home renovation, and wedding.
Personal loans are sanctioned basis the credit reports
In reality, personal loans generally do not require the credit reports of their borrowers to be up-to-date. While a good credit report is always an added advantage, however, while sanctioning a personal loan, the capability of the applicant to repay the loan promptly basis their annual income is what is considered.
Only Salaried people are eligible for personal loans
This myth is the commonly heard among people, the reality is that private businessmen or self-employed individuals can also avail this benefit of having a personal loan. This myth is not completely false, as the interest rate varies and is usually higher to other compared to that allowed for the salaried people, self-employed individuals or businessmen.
No Tax Benefits
Irrespective of whatever you may have heard, you can always claim tax benefits for a personal loan. Firstly, a personal loan cannot be considered as an income. So when you plan to file your IT returns, this amount is not included as a part of your taxable income. But this rule is applicable provided the loan is sanctioned from the bank or any financial institution. Secondly, you could claim tax benefit on your personal loan if the amount has been utilized for an effective reason.
No benefit gained in paying-off Credit Card Debts
If credit card debts are unpaid for a longer duration, it can lead to accumulation of compound interest rates. Hence, if a personal loan is borrowed at a lower interest rate, it can be utilized to pay the outstanding amount of your credit card. A smarter option could be to avail ‘balance transfer’ of your credit, treated as a personal loan against your credit card.
Now that we’ve been able to clear some of the cloudy myths, it should be clear that a personal loan can be an extremely viable financial instrument. This is applicable if loans are taken after thorough research and planning.
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