- Personal loans give you the flexibility of using the money you borrow for whatever expense you want to apply it to.
- Other loans such as vehicle loans and home loans allow you to use the money only for specific purposes.
- Fixed interest rates and monthly payment schedules are characteristic of personal loans.
If you’re contemplating applying for a personal loan but aren’t able to make up your mind, it may be due to a few myths you may have heard about them and believed them to be true.
Read on to know about the 4 biggest myths surrounding these loans and then you can decide for yourself.
Myth 1: You can apply for a personal loan only if you have the best credit scores
Personal loans are available to all. Having a high credit score benefits you in that it helps get you a better interest rate and loan terms. Other than that, you can get a loan even if you have a low score.
Lenders do look for applicants who have high credit scores. They are more preferred since they have a lower risk of payment default. If you have excellent credit (670 and more), lenders will be happy to sanction a larger loan amount and give you the best interest rates on the market.
But even those with low scores can get their loan applications approved. The only catch is that low credit attracts higher interest rates and smaller loan amounts. Even then, your rate of interest is most likely to be lower than that charged by credit cards.
That said, before you apply, it would be wise to try and improve your credit so that you get great loan terms. Or, you can apply for the loan along with a co-signer who has a good credit score. Another way to get a good interest rate is to pay off existing debt or increase your income. This will reduce your current debt-to-income ratio and may get you a better rate.
Myth 2: Personal loans are too expensive
Personal loan interest rates depend on your income level and credit score. But in most cases, they are much lower than the rates charged by credit cards. This is one of the main reasons why personal loans are used for debt consolidation.
According to the Federal Reserve, the average interest rate for a 24-month personal loan was only 9.46%. This makes taking this loan a far better option than carrying credit card debt. Many credit card users who are deep in debt use personal loans to pay off their dues. This reduces their interest rate significantly and helps save hundreds of dollars in interest payments every year. The bottom line, personal loans are not very expensive.
Myth 3: It is difficult to apply for a personal loan
Applying for a personal loan today is as easy as booking a flight ticket online. Till about a few ago, yes, the process was a bit tedious. You would have to go to the bank in person with all your documents or they would have to come home. And it would take a few days or weeks for your loan to be sanctioned.
Today, you can apply for a personal loan in less than 10 minutes. All you need to provide is some of your personal details, and lenders will process your application. In addition to this, you can compare various lenders online to see which one gives you the best rates and loan amount.
Myth 4: Personal loans are not useful for emergencies
Today, since personal loans can be obtained in just a single day or two, they are the perfect solution to help you in case of financial emergencies. The application process is quick and simple online. The verification and sanctioning also happen within a few hours and you can get the money in your account within a day of signing the agreement.
Moreover, since you have the freedom of using the money for any purpose, they can be of real help during a financial emergency. Need money for an emergency medical expense or to consolidate your currents debts? A personal loan just might the best option for you.
These are just myths about personal loans. Don’t let them keep you from applying for one. Search online for the best rates and qualifying amounts available to you and make an informed decision. Just make sure that once you take the loan, you pay every installment on time. Missing even a single payment will hurt your credit badly.