The Truth Behind the Common Misconceptions About Personal Loans for Salaried Employees

personal loan for a salaried employee

We all have a desire for a safe and comfortable way of life, as well as a safety net to deal with any unplanned/immediate needs. So, what do you do if you run out of money during an emergency? You can take a personal loan even if you have an emergency fund.

People have many misconceptions about personal loans, so they do not take personal loans when needed. These loans are available to anyone fulfilling the eligibility criteria. Furthermore, new-age lending institutions like Clix Capital now offer online personal loans. Isn’t that fantastic news?

Generally, personal loans are easily available to salaried employees provided they follow what the loan provider asks for. However, several misconceptions exist about the personal loan for a salaried employee.

Let’s try to understand a few of the most common misconceptions 

  1. Loan Rejection Due to a Low Credit Score

While there is no denying the importance of a good credit score in obtaining personal loan approval, it is not the only factor considered by your lending institution. Other considerations include your monthly income, debt-to-income (DTI) ratio, repayment capacity, and, in some cases, your employer. 

For example, if applying for a personal loan for the first time, you are unlikely to have a credit score. That does not mean you will not be able to obtain a small personal loan. You must provide sufficient proof of your ability to repay. A personal loan for a salaried employee may work in their favour if they are paid well by a reputable employer. Similarly, if your credit score is 630 or below, you may still be approved if you can demonstrate repayment ability to your lending institution. Remember that the interest rate offered to you will be higher than the rate provided to applicants with a better credit score.

  1. Personal Loans Come with a High-Interest Rate

Your lending institution determines your interest rate after considering various factors such as your credit score, monthly income, debt-to-income ratio, and repayment capacity. It is incorrect to assume that it will automatically have a high-interest rate because it is a personal loan. 

If your repayment capacity is low, you will get offered a higher interest rate and vice versa. It is due to the personal loan’s unsecured (no collateral) nature, which poses a higher risk to your lending institution. However, if you have a high credit score and can demonstrate a strong repayment capacity, you may be able to obtain a loan with an interest rate as low as 14.99% p.a.

  1. There Is No Option for Prepayment

Because of the shorter term of a personal loan, which typically ranges from 12 to 48 months, many people believe that there is no prepayment option available on a personal loan. You can, however, pay off the loan before the term expires. 

  1. You Can Only Avail of One Loan at a Time 

While applying for a new personal loan and repaying an existing one is not a good idea, it does not rule out the possibility. You must meet the same eligibility requirements as you did for your first personal loan. You should be fine if you can demonstrate adequate repayment capacity even after accounting for your existing personal loan EMIs. Otherwise, your loan application will be denied, and you can reapply after fully closing the existing personal loan.

  1. Only Salaried Professionals are Eligible for Personal Loans

Where would all other people turn for emergency funds if this was true? While having a consistent source of income is desirable by your lending institution when you obtain a personal loan, other people are also approved for small personal loans if they have the necessary documents and good credit history. Personal loans are popular today because they are easily accessible to salaried and non-salaried people. 

There are many common misconceptions about personal loans for salaried employees. 

Personal loans for salaried and other individuals/professionals such as businessmen, CAs, doctors, and so on are available provided they have all the necessary documents, with loan providers evaluating their credit score and ITR before sanctioning the loan. 

Personal loans are safe and risk-free because they are unsecured, which means no collateral is required. These loans can be used for almost any purpose, such as an international vacation, a wedding, education, debt consolidation, home interior decoration etc. 

About the Author
Amaira Sharma is finance expert and former business growth strategist who has more than 8+ years experience in the industry, now she helps others to get better financial stability and standards. She loves to write useful tips on personal finance and businesses. 

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