A personal loan is simple and quick to apply for because it is a loan without any collateral. However, several myths could bias your judgment. If you hold onto these myths, you won’t be able to get ahead with this credit choice. Consider checking out these 7 often held yet inaccurate views about personal loans.
If you are already making payments on a debt, you cannot be approved for a personal loan.
Applying for another loan when you already have one with a particular lender can be a little dangerous, but only if you can’t afford it. Your credit score will increase if you have a solid payback record. Moreover, rest assured that the application procedure won’t be hampered if the categories of your current loan and the one you are seeking differ. For instance, obtaining an unsecured loan, such as a personal loan, is not at all hard if you already have a secured loan, such as a home.
If your credit history is average, you won’t be approved for a personal loan.
Although your credit score is a major consideration when applying for financing, it is not the only element that determines whether or not your application will be granted. If you prove that your income is substantial and reliable and that you meet the basic credit score requirements, a little decline in your score won’t simply result in rejection. But to make up for it, you may be required to pay a rather higher interest rate.
Always request more funding than you require
A loan of any kind carries an interest charge, so keep that in mind. The interest component increases as you borrow more money. Thus, you must also pay higher interest if you overborrow. For this reason, it’s crucial to only borrow what you actually need. If you don’t follow by this rule, the loan turns into a pricey funding option.
The interest rate for personal loans is the same across all lenders.
This assertion is untrue because different personal loan interest rates are offered by each lender. Even the supplementary fees and charges differ in addition to this. Therefore, it is important to assess each offer before choosing one. Additionally, the rate of interest that the lender provides you is determined by your own economic state.
Receiving a personal loan lowers your credit rating.
It’s commonly accepted that the best financial move is to avoid taking out a loan. However, you don’t get a credit history if you don’t use any credit. You don’t have a credit score as a result. So, obtaining a loan, such as a home loan, may prove a challenge in the future. In order to improve your credit score, it is advised that you take out a personal loan, use it wisely, and make timely repayments. When you decide to apply for a personal loan, your credit score will drop slightly. Your credit score will rise again as long as you continue to pay your EMIs on time.
If you take out a personal loan, you won’t be eligible for a home loan later on.
Instead, taking out a personal loan and repaying it demonstrates your financial liability. Therefore, you will be an excellent candidate for a home loan as long as you have a consistent income source and the ability to repay the loan. Your prospects are improved by having a clean credit file in addition to this.
Needing a personal loan indicates poor money management.
Credit usage does not automatically imply that something is wrong with your personal finances. You can improve the quality of your life and achieve personal goals with the aid of a personal loan. This does not imply that you are bad at managing your finances. Your credibility significantly rises once you pay off your loan on schedule.