Personal loans can help you manage your expenses in times of need. These loans come with flexible terms and repayment options, making them the best choice for multiple financial needs. However, despite the vast use of personal loans, some people spread misconceptions about these loans.
There are some common myths about personal loans that prevent people from making informed decisions about their financial well-being. Due to the popularity of these myths among the public, it is very important to debunk them and explore facts.
Below in this guide, we will debunk 5 common personal loan myths and provide the truth behind them.
1. Personal Loans are Only for Emergencies
It is a general misconception among people that personal loans are only for emergencies and can only be used in times of financial crisis. It is true that these loans can be of great support during emergencies. However, they are not limited to such situations.
In reality, personal loans can be utilized for a lot of purposes, such as debt consolidation, home improvements, education expenses, and even starting a small business. By understanding all these applications of personal loans, people can make strategic financial decisions that align with their long-term goals.
2. Personal Loans are Only for Excellent Credit Scores
Good credit scores are an important foundation for obtaining any type of loan. However, there are some personal loan options at Lantern by SoFi, where you can get a loan even with a bad credit score. This depends on your lender and your commitment to repaying the loan amount in the minimum possible period.
There are many lenders who are ready to provide a personal loan even with bad credit scores. However, you will need to provide collateral in this case. This can be anything like your car, home, or any other personal asset. Also, the interest rates for such loans can be very high. But it doesn’t negate the fact that people with bad credit scores can also get personal loans.
3. Personal Loans Come with Higher Interest Rates
Another prevalent misconception about personal loans is that they are only provided at higher interest rates. While it’s true that interest rates can vary based on factors such as credit history, loan amount, and term length, not all personal loans come with high-interest rates.
Many reputable lenders offer competitive interest rates, especially for borrowers with good credit scores. It’s important for people to shop around, compare rates, and negotiate with lenders to secure the most favorable terms that suit their needs.
4. Applying for Multiple Loans Improves Your Credit Score
Some people mistakenly believe that applying for multiple personal loans simultaneously can improve their credit score. However, the reality is quite the opposite. Each loan application involves an inquiry on your credit report, and too many inquiries within a short period can have a negative impact on your credit score.
It’s important to be strategic when applying for personal loans and only pursue them when absolutely necessary. This is important to avoid unnecessary hits to your credit.
5. Personal Loans are the Same as Payday Loans
Well, this right here is the most damaging myth about personal loans we have come across. Personal loans are nothing like payday loans (short-term loans with ultra-high interest rates).
While both types of loans provide unsecured funds, personal loans differ from payday loans in terms of repayment periods, interest rates, and overall terms. Personal loans usually offer longer repayment periods and more reasonable interest rates.
On the other hand, payday loans have very high-interest rates and are also considered illegal and unethical in some states. This difference makes personal loans far more sustainable and a responsible borrowing option.
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