You’ve got monthly bills coming in like clockwork, multiple debts to pay and additional expenses coming up. You know you need to get a loan badly, but with so many negative things going around about personal loans, it can be hard not to feel apprehensive about applying for a loan.
If you’ve been in this situation before or are currently experiencing it, it’s about time to educate yourself on what’s true and what’s false about personal loans.
Demystifying the Myths
A lot has been said about personal loans, and while many have been true and useful information, there have also been many that led people to believe the worst about personal loans. Below are some of the most common of these myths and the real score behind them.
1. You can’t apply for a loan if you have bad credit or debt.
If you’ve accrued some bad credit and have avoided applying for a loan ever since, you need not do so any longer. While it is a fact that lending companies take a look at your credit history in order to decide whether or not to accept your application for a loan, there are actually plenty of lenders now who offer personal loans specifically for those with bad credit. These loans can help you pay off your debts and even raise your credit score.
2. Bad credit personal loans charge unfair interest rates
After knowing about bad credit personal loans, most people immediately think that these loans must have unfair or unreasonably high interest rates. This may be true for scammers, but when you deal with legitimate financial institutions, it definitely is not. The rates may be higher compared to those of regular personal loans but this is only because there is more risk involved in lending to a person with bad credit history. It is only reasonable for the interest rate to go higher since the risk of failure for timely repayment is higher as well.
3. Bad credit personal loans require collateral.
Having to pledge your most valuable assets can be enough to scare some people out of applying for a loan, but not all loans require this. Bad credit personal loans certainly do not require this, unless specified by the lending company. Only secured loans require collateral.
4. Multiple loan applications will hurt your credit score.
Online loan application is so easy and readily available nowadays, and many people take advantage of this by applying for different loans at the same time. They do this in order to find which ones will give them approval or which ones have the lowest interest rates. This can negatively affect credit scores, but it greatly depends on how the lending company checks credit history. Most credit scoring methods can recognise when you are simply rate shopping through a certain time limit. Depending on the lending institution, this time limit can be as short as 14 days or as long as 45 days. So if you find the loan you need within these days, the lender will realise you were only surveying your options so your credit score should be safe and you should have nothing to worry about.
5. It’s advantageous to apply for more than you need.
Some people believe that it is advantageous to apply for more than they actually need. They believe that they can use the extra amount to pay off the first loan payment, or that the large amount will mean extended repayment time. But the truth is that lenders already have pre-determined terms for every loan which include the repayment time, and applying for more than you need may actually just cause more trouble for you. It may become more difficult to make the repayments on time, and you run the risk of rapidly reducing your credit score.
6. Loans can’t help you with your debts.
People who have several minor debts can actually benefit from personal loans. Instead of paying many different debts with many different interest rates, they can pay them all off with one loan with one interest rate. This may not lower your debt, but it will pay off all your debts instantly and consequently lower the total amount you pay in interest.
There’s no reason to worry about getting a loan when you’re armed with the right information. Push aside those myths and free yourself from debts by getting the right loan for you.