5 big misconceptions regarding personal loan, know them immediately, otherwise you will face financial burden

By Sandy Verma On Dec 21, 2025

Personal Loan Myths: Personal loan has become an essential means for people to meet their daily needs and major expenses. People are increasingly taking personal loans for medical emergencies, children’s education, home repairs, or other important family expenses. However, due to lack of information and incomplete understanding, many misconceptions persist about personal loans. These misconceptions not only confuse people, but also often prevent them from taking the right financial decisions.

Misconception 1: Personal loans are only for salaried people

The most common misconception is that personal loans are available only to salaried employees. The truth is that self-employed people, business owners, startup founders, and even pensioners can be eligible for a personal loan. Banks and financial institutions check whether the applicant’s income is stable and whether they are able to repay the EMIs on time. Therefore, the source of income is not as important as the regularity of the income and the ability to repay.

Misconception 2: Low credit score means automatic rejection

People often assume that it is impossible to get a personal loan if they have a low credit score. Although it is true that getting a loan becomes easier if you have a score of 750 or more, but a low score does not mean that the loan will be rejected. Banks also consider income, stability of job or business, existing debt and payment history. However, people with low scores may get loans at higher interest rates or with stricter terms.

Misconception 3: Personal loans have very high interest rates

It is a common belief that the interest rates on personal loans are very high. In fact, in most cases, the interest rates on personal loans range between 10 to 15 percent per annum. Rates may be higher for those with a weak credit profile or those who have defaulted on EMIs. However, compared to credit card interest rates, which can range from 35 to 45 percent, a personal loan can be a cheaper and better option, provided the terms and conditions are understood properly.

Misconception 4: If you already have a personal loan, you will not be able to get a new personal loan

Many people think that if they already have a loan, it is difficult to get a new personal loan. However, banks do not see it that way. They look at your total EMIs compared to your income, i.e. your debt-to-income ratio. If your income can handle the additional EMIs and your payment record is good, you can get a second personal loan. A good credit history and timely payments play a very important role here.

Misconception 5: Personal loans are only for personal expenses

Although the name may seem like personal loans are limited to personal expenses only, they can actually be used for a variety of purposes. People take them for business investment, education expenses, repayment of old loans, or medical emergencies. Banks generally do not impose any strict restrictions on how the loan amount can be used. However, to avoid any misunderstanding, it is prudent to understand the terms and conditions from the bank thoroughly before taking the loan.

Right information helps in taking right financial decisions.

Personal loan is a useful financial tool, but only when the facts related to it are properly understood. Taking decisions based on rumors and misconceptions may increase financial stress in the future. Therefore, before taking a loan, it is important to assess your needs, repayment capacity and terms and conditions. A personal loan taken with the right information not only helps in difficult times but also proves helpful in maintaining financial stability.

Personal Loan Myths