Are you considering a personal loan? Avoid these 4 myths

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Before taking out a personal loan, understand some of their common myths so you can make an informed financial decision. (iStock)

Personal loans are fixed interest rate, fixed monthly payment loans that can be used for almost any loan purpose. They are commonly used for debt consolidation, emergencies, home improvement, to pay off debts and more. Plus, most personal loans are unsecured, unlike a home loan or car loan, which means you don’t have to pledge an asset to get one.

Understanding the ins and outs of personal loans can take some time. If you don’t fully understand how they work, you could fall for some common personal loan myths. Read on to find out what four of them are.

WHAT TO DO BEFORE APPLYING FOR A PERSONAL LOAN

You can explore your personal loan options by visit Credible to compare rates and lenders.

4 personal loan myths to ignore:

  1. Personal loans are too expensive
  2. Personal loans won’t work in an emergency
  3. Personal loans are reserved for senior borrowers
  4. Applying for a personal loan is difficult

Myth 1: Personal loans are too expensive

Depending on your creditworthiness and income, personal loan rates can exceed 30%. However, the average interest rates for personal loans are generally lower than the average interest rates for high interest products like credit cards. For example, the average credit card interest rate was 14.75% last February, while the average 24-month personal loan was 9.46%, according to the Federal Reserve.

For this reason, personal loans are commonly used to consolidate credit card debt. Using a personal loan with a lower interest rate to consolidate it, or other high interest debt, can help you save hundreds of dollars in interest. If you are curious about your personal loan rate and your monthly payments, visit Credible to use their personal loan calculator and find the best personal loan rates.

Myth 2: Personal loans won’t work in an emergency

Unlike mortgages, personal loans do not require you to go through a closing process after applying for the loan. For this reason, in times of emergency, personal loans can provide you with quick access to cash. For example, some lenders may deposit the loan amount into your bank account the day after signing the loan agreement.

HOW TO MANAGE YOUR PERSONAL LOANS MORE EFFICIENTLY

Myth 3: Personal loans are only for senior borrowers

While it is true that the best personal loan rates and the largest loan amounts generally go to borrowers with good to excellent credit scores (670 or higher) and high incomes, it is commonly accepted that loans Personal accounts are intended only for high profile borrowers.

Some lenders offer personal loan options to borrowers who have less than stellar credit scores and lower incomes. For example, some lenders approve applicants with credit scores as low as 580, a fair score on the FICO credit scoring model. While you most likely get a higher interest rate with a bad credit rating, you could still get a lower rate than with a credit card.

To improve your chances of qualifying for a higher personal loan amount or better rate with a lower credit score on a credit check, consider applying for the loan with a co-signer who has better credit and more. income, if allowed. Just try to repay the loan on time so that the credit of the co-signer is not negatively affected.

Alternatively, you can work on improving factors like your debt-to-income ratio and a bad credit score. before applying for a personal loan. This could increase your chances of qualifying for a better rate.

DISMOUNTING 3 MYTHS ABOUT PERSONAL LOANS

To explore all of your personal loan options, visit a online market like Credible.

Advances in technology have made it easier than ever to apply for a personal loan. In pre-internet days, you had to call or visit a lender in person to apply for a loan. Today, you can apply for a personal loan from anywhere.

The process is faster – it can take less than 10 minutes to apply for a loan from some lenders. You just have to enter some personal information like your name, your date of birth and your income.

Moreover, it is also easier to compare several lenders. If you prequalify for a personal loan through an online lender, you can compare the rates and terms of multiple personal lenders digitally or through a mobile app seconds before you apply.

Final thoughts

Now that you’ve learned some common personal loan myths, you should be able to make a more informed borrowing decision. Before you decide to take out a personal loan, be sure to explore all of your options to make the best choice when it comes to personal finance.

And if you end up pulling one out, learn how to deal with them. For example, make sure you can repay the loan on time to avoid late fees and serious damage to your credit score. It is important to understand how personal loans differ from business loans and a car loan, as both of these are secured loans rather than unsecured loans.

If you need more information on personal loans, you can visit Credible to get in touch with experienced loan officers to get your questions answered.

9 LOW INCOME PERSONAL LOANS FOR 2021

Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.


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