Education is a prerequisite for financial success in life, isn’t it? Surely many people think so, but the level of financial literacy does not always depend on the availability of education in a person. It is one thing to have theoretical knowledge, and quite another thing to be able in practice to properly manage your finances. Often, ignorance or misunderstanding of financial processes leads to misconceptions regarding loans, investments or pension plans, which leads at best to a person not using all the opportunities that he has, and at worst to big financial problems. Personal loan myths are one of the prime examples of a large number of misconceptions.
It is worth debunking the main personal loan myths, which very often stand in the way of solving your problems and stopping you from receiving financial support when you need it. Even many educated people from fields not directly related to finance often become hostages to personal loan myths, not talking about ordinary workers and young students who do not have much experience in managing their personal finances.
So, break down the barriers personal loan myths have established between you and your financial well-being by learning the true state of things.
Myth 1: Personal loans are for irresponsible people spending more than they can afford
This is a common misconception among the many. However, the truth is that it is hardly worth taking any loans if you constantly barely make ends meet, because this can only aggravate your situation. Moreover, many creditors will not want to take risks with such borrowers and refuse to give them a loan, or offer a loan on draconian terms.
Another thing is when you usually cope with the load on your pocket, but at some point some abnormal situations upset your financial balance and you have to go beyond your budget to solve the problem. In general, this can happen to any of us, so a personal loan can be a very good way to solve unforeseen financial difficulties.
Despite the personal loan myths telling us about this case, in addition to unforeseen difficulties, this type of credit can help in a variety of situations not of an emergency nature. Since most often personal loans are issued for any purpose, you can take one for anything – from buying things, to consolidating debt or opening your own business.
Myth 2: For a personal loan to be approved, you need excellent credit status
This is one of the personal loan myths that have nothing to do with reality. Yes, maybe payday loans have a slightly higher percentage of approval among people with bad credit, but they have completely different, more stringent and less favorable terms.
Many personal loans creditors are willing to consider lending to a borrower with poor credit status and even have special offers for debt consolidation to help the borrower recover his credit over time to a good status.
Of course, with a bad credit, you can’t count on low interest rates, but you can almost always find lenders who will approve your application in your situation. Personal loans in many cases are just the opposite, they can help you where others will refuse you.
Myth 3: High interest rates
Interest rates in any credit type will vary depending on the economic situation in the country, loan conditions and circumstances in which the borrower is located. Personal loans are no exception, and the interest rate can be quite high under adverse conditions, but on average they have far from the highest interest of creditors.
Rumors about the exaggerated high cost mentioned in personal loan myths are probably due to the fact that sundry creditors are willing to work with people with a bad credit history and lack of a hard credit check. Naturally, under such conditions, the risks of creditors are much greater and, accordingly, a higher interest rate is set to compensate for them.
On the other hand, using your property as security for a personal loan, you will receive a low interest rate, since the lender, in case you do not pay the debt, compensates his or her expenses by selling your property.
However, if we compare, other things being equal, personal loans with credit cards or with payday loans, then a personal one will usually have a much lower annual interest rate. Due to the specifics of credit cards, you can pay a lot of interest to the issuer for the year, even if the APR is not high. The minimum monthly payment on a credit card is usually arranged so that it covers only the interest of the creditor,while your debt remains in the same place. The longer you repay monthly only the minimum required payment, the more you spend your money paying interest to card issuer.
Also remember that there are many sundry lenders who offer a variety of conditions, conduct or do not conduct a promotion to attract customers and are even ready to discuss the terms of personal loans with a new client if you initiate such negotiations.
If you are faced with the need to get a personal loan, then do not rush to grab the first available option that you can approve. Do a little research on the offers and choose the one that best suits your circumstances, and then just apply.
Myth 4: Personal loan will lower your credit score
Personal loan myths scare us by harming the credit rating if one get one of them. The source of this myth lies in the fact that some people submitted too many applications for a personal loans in a short period of time, which is why the credit rating is really reduced to some extent, and this applies to all types of credit.
By itself, a personal loan does not reduce your credit score, and even vice versa, provided timely payments are made, it helps you gradually build or restore a damaged credit rating. Often, personal loans are used to consolidate debt.
Since credit cards have a revolving credit, the resulting high balance on them significantly reduces your credit score. Therefore, a particularly effective way to quickly improve your credit rating is to cover balances on your credit cards with a personal loan.
But what really seriously harms any credit is overdue payments or, moreover, their quite absence. You should not allow a credit payment to be missed, because in the future a reduced credit rating will prevent you from getting what you need. Bad credit can prevent you from getting approval for even a relatively small purchase until you rebuild your credit status.
Myth 5: the complexity and duration of obtaining a personal loan
If earlier the borrower had to visit the lender’s office to borrow needed money and it is possible to stand in line while losing his precious time – the only irreplaceable resource, now applying for a personal loan has become much easier and faster.
Most lenders have a representative office on the Internet, so now you can fully arrange a loan without leaving your home or even getting up from your favorite sofa. You only need to prepare photo of your documents or their scans to upload and send to the creditor for consideration. Just a few minutes and a few clicks of the mouse or tap on the screen of your tablet or smartphone and the application is created.
If your credit application is approved, you can receive your money on the card within a few hours or no more than the next day. It turns out that today, personal loan is one of the fastest and easiest ways to get the necessary money.
Check what you hear and take advantage of knowledge
Personal loan myths are often common urban legends and most of them have no basis, but many people, unaware of how things really are, continue to believe them, spreading these false rumors further. However, free access to almost any useful information in our time should help get rid of such false stereotypes.
As you can see, personal loans are one of the best ways to get financing to solve problems or implement your plans. Under many conditions, personal loans are more enticing than credit cards and can also help improve your credit rating. As in the case of any loan types, you only need to use them correctly and they will bring you only benefit.
Learn how to manage your personal finances, what loans are and what are the features of each type, how to handle loans if there are a lot of them or they have become too heavy for you. You can find information about all this in our financial blog.