Debunking Common Loan Myths What You Need to Know

There are many myths about loans that can confuse people. If you're considering a home loan, personal loan, or business loan, it’s easy to get the wrong idea. It's important to know what’s true and what’s not so you can make good financial choices.

Let’s understand in detail.

1. Myth: Loans are only for people who have a high credit score

Fact: A Good Credit Score Helps, But It’s Not the Only Factor

A common misconception is that you need the best credit score (like 770 or above) to qualify for a loan. This always isn’t true. While your credit score is important, it's not the sole factor lenders consider.

A CIBIL score of at least 700 or above is also considered good. However, even if your score is lower, it’s still possible to secure a loan. Lenders look at your income, job stability, and debt-to-income ratio before making their decision.

Important: While a good credit score can get you better interest rates, you can still secure a loan with a score under 750, though the interest rates may be slightly higher.

2. Myth: A fixed interest rate is better than a floating interest rate

Fact: Not always

Many people believe that it’s best to opt for a fixed interest rate but it totally depends on your risk-taking capability, overall understanding of the market, income, age, and many others. Based on that you choose what is the best. In case the market performs well and the interest rate is getting lower in the future you will have a lot of advantages.

3. Myth: All Loans Have High-Interest Rates

Fact: Interest Rates Vary Based on Loan Type and Creditworthiness

One of the biggest misconceptions is that all loans come with sky-high interest rates. This simply is not true. Interest rates vary widely depending on:

• The type of loan you’re applying for.

• Your credit score.

• The lender's policy.

For example:

• Home loans typically have an interest of 8.30% per annum.

• Personal loans can be starting from 10.50%

Always compare loan interest rates from different lenders before making a decision.

Compare and apply for the best loan here

4. Myth: Taking Multiple Loans Hurts Your Credit Score

Fact: Responsible Borrowing Can Improve Your Credit Score

Many people think that taking multiple loans will hurt their credit score. While over-borrowing or defaulting on payments can lower your score, responsible borrowing can actually improve your credit score over time.

Here’s how it works:

• If you manage your loans responsibly, paying your EMIs on time, your credit history reflects positively.

• Having a mix of secured (like home loans) and unsecured loans (like personal loans) can diversify your credit profile and boost your score.

What matters is not how many loans you have, but how well you can manage them. If you pay your loans on time, it can actually improve your credit score.

5. Myth: Loans Are Only for People in Financial Trouble

Fact: Loans Are Financial Tools for Growth and Opportunities

Many people think loans are only for those in serious financial issue. But that's not true! Loans are helpful tools that people use to buy homes, start businesses, or pay for education.

For example:

• A home loan helps you purchase property while repaying the amount in manageable EMIs over time.

• A business loan allows entrepreneurs to expand their businesses, invest in new opportunities, and create growth.

Don’t see loans as a sign that you're in trouble. Instead, think of them as helpful tools that can help you reach your long-term goals.

6. Myth: Short tenure is best

Fact: While it’s good, try to understand your financial situation and then make a decision

Short tenure is a good idea, but think about the higher EMIs if you can pay it that’s great. It’s also a great idea initially you take it for a long period of time then after a few years or months if you have lump sum money then pay it right away with a prepayment penalty. But evaluate how much the penalty is before taking any decision.

7. Myth: You Can’t Negotiate Loan Terms

Fact: You Can Negotiate Loan Interest Rates and Terms

Many people believe that the loan terms from banks can't be changed, but that's not true. Depending on your credit score, how well you know the bank, and current market conditions, you can often negotiate for lower interest rates, better repayment options, and even lower fees.

Don’t hesitate to ask your bank for better loan terms. Borrowers with a good credit score or a long-term relationship with their bank are in a better position to negotiate.

8. Myth: Loan Applications Are Tedious and Lengthy

Fact: Digital Lending Has Made Loan Applications Faster and Easier

Nowadays all loan companies have their own website and if you are interested in applying loan physically then also banks offer minimum documentation for specific loans such as personal loans but in the case of a home loan there are many documents needed.

The truth is that not every loan has a tedious documentation process, it completely depends on which loan you are choosing.

Conclusion

Loans can be helpful for managing money, but there are many myths that create fear and confusion. By clearing up these common misunderstandings, you can make better choices about when and how to get a loan. Whether you need a loan for buying a house, starting a business, or dealing with an emergency, knowing the facts can help you feel more confident in the loan process.

Frequently Asked Questions (FAQs)

1. Can I get a loan with a low CIBIL score?

   • Yes, but the interest rates may be higher. It’s best to work on improving your score first.

2. Is it true that I can’t negotiate loan terms with banks?

   • This is a myth. Depending on factors like your credit score and your relationship with the bank, you may be able to negotiate lower interest rates and flexible repayment options.

3. Does having multiple loans always hurt my credit score?

   • Not necessarily. If you manage multiple loans well and make timely payments, it can actually improve your creditworthiness.