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29 May
  • Editorial Team

Our ambitions have created a capital need for both work and leisure. But despite the rampant necessity, people still fear loans. The fear often leads to myths; myths that negate all the good that loans offer.

However, myths are easy enough to be busted and make you better-informed. Here are few popular myths about loans, and the actual reality behind them.

Loans Myths and their Reality

Myth: High-Interest Rate = Large Monthly Installments

Reality: While it seems logical to assume that high-interest rate would always mean high EMIs, although this is hardly ever the case. In case of high-interest rates, the banks are willing to increase the tenure of the loan. Thus, your EMI would not be a large sum of amount.

Other factors like age and income of the borrower also play a role in deciding the size of EMI.

Your income is one of the factors that affect your size of the loan. Always remember that shorter the duration of your loan, the larger will be the size of your EMI and vice-a-versa. Sometimes due to higher EMI, borrowers are unable to repay back their loan on time which also affects their credit score.

Myth: Low-Interest rate means cheaper loans

Reality: While low-interest rate does mean that you will have to pay low-interest amount, there are many other factors involved. There might be few hidden charges which if you overlook could increase your EMI amount. Low-interest loans are also often inflexible in a way that you might have to pay for a longer tenure. Hence, while low- interest rate is definitely an important factor, it is not the only factor to consider.

Myth: High Credit Score guarantees loan approval

Reality: Your credit score is like your first impression: it helps the lender to guess few things about you. However, a good credit score alone cannot guarantee loan approval. Most lenders consider multiple criteria like income, business turnover etc. before approving a loan. Conversely, a bad credit score also doesn’t mean that you cannot get your loan approved.

Myth: Personal Loan is always a better choice than Business Loan

Reality: This is like comparing apples and oranges. Both Personal Loans and business loans provide you with money and have to be repaid, but that’s where the similarity ends. Personal loans often have very high-interest rate and small repayment tenure. The loan amount is also quite small, aimed at individual need. For someone who is looking for high loan amount with long loan tenure and low-interest rate, business loans are the answer. So, it all depends on your needs.

Myth: Business Loans are hard to get

Reality: This is an obsolete myth. Not just well-established names, but small business and startups can receive business loans too. The government has offered various loaning schemes for SMEs and startups. You can always go to Non-Banking Financial Companies (NBFCs) for a faster loan approval. Sometimes, business loans can also be unsecured. So, you can get the required funds without keeping any property as collateral. Lastly, business loans do not take a lifetime to get approved. If you keep all the documents ready and keep submitting them in a timely fashion, you will get the loan approved in a jiffy.

That being said, you still need a good credit score, a well-defined business plan, and past returns for easily getting the business loan.

Myth: Big lenders are the best lenders

Reality: Fair enough, big lenders do have an aura of trust around them. However, let’s be clear: it is you who is seeking the money. Fortunately, there is a multitude of loan options for consumers today. Apart from the big NBFCs and Banks, there are smaller lenders who were established recently and/or who do not have a large presence. They are often more flexible with their terms, as they need you almost as much as you need them.

Apart from banks, there are NBFCs and digital lenders who also offer loans at attractive rates. The choices are plentiful and suitable for all kinds of requirements. The added benefits of going with alternative lenders are better interest rates, easy documentation, and quick loan approval.

Falling prey to myths and rumors is a very natural thing in daily life. However, it is also imperative to rectify them as soon as you can. The myth-busting in this article would hopefully help you in making a better choice while seeking loans.

Did You Know


The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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