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Aug 23, 2016
The idea of taking out a personal loan can be an intimidating one to the uninitiated. All kinds of myths about personal loans exist, and sometimes these un-true beliefs can be the biggest thing holding people back from utilizing personal loan financing to better their lives or to ahieve their goals. There are many informative tools on the internet such as personal loan calculators, interest rate and comparison pages, but these are all of limited use for people who believe the wrong things and make decisions based on hearsay instead of cold, hard facts. Here are the top five myths about personal loans, busted!
Myth #1: People With Bad Credit Shouldn’t Even Think About Getting A Loan
Having a good credit score is crucial in securing a personal loan with a favorable interest rate. It used to be that having a poor credit history could be a death blow to your hopes of getting your loan application approved. These days however, bankruptcies or missed payments do not carry as much weight as they used to.
If you’ve managed to maintain a reasonably good credit utilization ratio for the past few years then you can still get your personal loan approved. This ratio is calculated by dividing your total credit card balances with your total credit card limit. Note that the interest rate or the amount you are allowed to borrow may differ. You can get a more favorable interest rate by putting collateral for the loan, which will reduce the rate considerably.
Myth #2: Your bank is always the best source for personal loans
You might be under the presumption that your bank is the best place to get a favourable personal loan, but that may not always be the case. Each bank or financial institution has different personal loan requirements and policies depending on their risk appetite and their choice of strategy. Some banks charge higher interest rate to low score borrowers and others target only high score borrowers at low interest rate. Depending on your situation, his means that banks may not always be the best choice for you if you’re seeking a personal loan.
In recent years, a number of other alternatives such as online lenders and peer-to-peer (P2P) lenders have emerged, which has forced the market to offer competitive interest rates and terms to clients. So, don’t limit yourself to one source only. Make your queries thoroughly before you come up with a final decision.
Myth #3: You can only get one loan at a time
You are eligible to apply for more than one loan if you have sufficient cash flow, good credit score and the right debt-to-income ratio. However, you must keep in mind that multiple loan means increased interest rate and high debt to income ratio. So, think twice before taking this step since you might put yourself in a risky position if you are not good at managing multiple debts well. Remember, never bite off more than you can chew!
Myth #4: Loans are always cheaper than credit cards
Credit cards vs personal loans, which is cheaper? Credit cards are supposedly more expensive than personal loans, and most of the time, this happens to be the case. However, there are many types of credit cards these days, and there is actually one type of card that would trump taking out a personal loan, provided that you are borrowing a relatively small amount of money for a short period of time, preferably one year or less.
If this is the case, making use of a 0% annual percentage rate (APR) credit card may actually be a better choice than taking out a personal loan. This way you can pay back the money without being liable to any interest payment, and you also need not worry about your low credit score, as credit cards for bad credit charges a rate between 24% - 30% whereas personal loan for bad credit scorers will be charged 36% on average.
Myth #5: Loans will never help you with your debt
It makes sense, right? Taking out more debt should only add to your existing debt pool, not help reduce its burden on you, right? However, this may not always be the case. In the right circumstances (for example, market interest rates drop), you can refinance your existing loans by taking out a largerpersonal loan to pay off all your other loans and consolidate them under one obligation.
This does not necessarily reduce your debt total, but when used right, it can help you take advantage of fluctuations in interest rates or allow you to renegotiate the terms of your loan to one that is more favorable. This is also known as debt consolidation, and it can help you save a bunch on interest costs! You will remain with only one loan to handle with a comparatively low interest charge payable altogether.
It never pays to believe in myths or hearsay blindly. Personal loans can be a powerful financial tool for achieving your goals, and with this article, we hope that we have de-bunked some of the misconceptions you may have had about them. If you’re still un-sure about your eligibility, or if you have any questions, feel free to call us at 03-74515283, or e-mail us at email@example.com. Our team of experts will answer any questions you have, completely free of charge.
Cover Image via blog.credit.com
Article via Loanstreet.
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