Debunking Common Personal Loan Myths in India - Ayaan Finserve India

Debunking Personal Loan Myths: Separating Fact from Fiction

Have you ever stopped yourself from applying for a personal loan because you feared rejection or high interest rates?

You’re not alone — but chances are, you’ve believed some common personal loan myths.

Myths related to personal loans continue to exist despite their popularity. Many prospective borrowers are discouraged from looking into a product that could actually benefit them because of these misconceptions.

By getting the facts straight on these common myths, you can make well-informed, confident financial decisions. Doing your research, reading the terms and conditions, comparing lenders, and comprehending the repayment plan are all crucial. Let’s dispel the most common personal loan myths and separate fact from fiction.

₹5,000–₹50,000 in 30 minutes. No collateral. No hassle.

Common Myths About Personal Loans (and the Truth Behind Them)

Short-term personal loans are getting more and more popular as they match how we live – fast-paced, and with immediate needs that can’t wait for lengthy processes at banks. Here are the key to advantages of short-term loans to keep in mind.

1. Personal Loans Are Only Meant for Emergencies

Myth:

One of the most common myths is that personal loans should only be used in emergency situations. This misconception probably originates from the idea that taking out a loan should only be done in extreme circumstances.

Truth:

Personal loans are not just for emergencies, even though they are a fantastic choice for urgent requirements. Personal loans are frequently used for planned expenses like higher education, festival-time purchases, or even wedding expenses. There are no limitations on how you can use the borrowed funds, unlike other loan types. A personal loan can assist you in more effectively reaching your financial goals if it is properly planned and managed. With Ayaan Finserve India Pvt. Ltd. (AFI), you’re free to use the funds for any legitimate purpose — whether it’s travel, education, home repairs, or celebrations — not just emergencies.

2. Interest Rates on Personal Loans Are Always Way Too High

Myth:

It's widely believed that personal loans always have high interest rates.

Truth:

Depending on your credit score, income, job security, and loan amount, interest rates currently vary from 10% to 40%.

To draw in low-risk borrowers with good credit scores, banks and NBFCs offer competitive interest rates. By comparing rates from different financial institutions, you can further negotiate. Therefore, interest rates on personal loans don't always have to be excessively high, even though they are typically higher than those on secured loans.

3. You Need a Perfect Credit Score to Get a Personal Loan

Myth:

Many people believe that if you don't have excellent credit, you won't get a personal loan.

Truth:

Although having a high credit score increases your chances of getting approved and getting better interest rates, lenders take other factors into account. Several other factors are also important, including your income, work stability, and repayment history. Even if your credit score is mediocre, some lenders might still accept your loan application. In fact, AFI accepts applicants with credit scores as low as 500, provided they meet other simple criteria like job stability and income.

4. It’s Very Difficult to Get a Personal Loan Approved

Myth:

This is one of the persistent myths about personal loans — that getting approved is nearly impossible.

Truth:

These days, approving a personal loan is easier thanks to flexible eligibility requirements based on income, type of employment, and a variety of documentation options. Additionally, when making approval decisions, financial institutions use credit algorithms that consider several applicant parameters in addition to the credit score. Therefore, stable income, a diverse credit mix, spending habits, and other indicators of healthy financial behaviour indicate reduced risk and improve the likelihood of approval. Consequently, your chances of being rejected for a personal loan are currently moderate to low, unless you have bad credit behaviour. At AFI, our expert staff guides you through an assisted, fully digital journey — making the approval process smoother and stress-free.

5. Applying to Multiple Banks Lowers Your Chances of Getting a Loan

Myth:

The idea that applying for loans from several banks lowers the likelihood of approval because of hard credit checks is another common misconception about personal loans.

Truth:

Credit reports are examined by banks to determine risk and assess stability in income. Despite several enquiries, a high credit score indicates sound financial management. Rejections are therefore typically based on risk factors and repayment capacity.

6. You Can’t Repay a Personal Loan Before the Tenure Ends

Myth:

Another widespread belief is that you can't pay back a personal loan before its term is up.

Truth:

Given that the majority of financial institutions allow prepayment, this is clearly one of the outdated personal loan myths that needs to be debunked. However, it is common for certain lenders to charge a minor prepayment fee. If you can afford it after a financial windfall, paying off your loan early can actually save you money on interest.

7. Using a Credit Card Is Always Cheaper Than Taking a Personal Loan

Myth:

It's a common misconception about personal loans that using credit cards to fund them is more cost-effective because credit cards offer interest-free periods ranging from 45 to 50 days.

Truth:

However, compared to personal loans, using credit cards to pay off long-term debt is riskier and more costly. Recurring interest charges of 36–42% annually are incurred when credit card balances are rolled over.

Personal loans, on the other hand, have structured EMIs that allow for quicker repayment of debt. Therefore, unless you pay it back during interest-free periods, using credit cards for long-term financing frequently ends up being far more expensive than taking out a personal loan.

8. There Are No Tax Benefits on Personal Loans

Myth:

This is another one of those personal loan myths that discourages potential borrowers from exploring benefits they may actually be eligible for.

Truth:

Although a personal loan by itself isn't regarded as revenue, you may be able to claim specific tax benefits under Sections 24 and 80C of the Income Tax Act, 1961, if you use the money for building or buying real estate.

Summing Up

As we have seen, the majority of misconceptions about personal loans are not true. Personal loans provide a number of advantages that make them a viable option for Indians in today’s world.

To prevent needless stress, just make sure to carefully plan your borrowing, read the fine print, and assess your ability to repay.

Do you want to apply easily or learn more?

Speak with Ayaan Finserve India right now!

Whether you need ₹5,000 or ₹50,000, AFI offers speedy disbursal, no collateral, and a simple application backed by transparent terms.