Personal loans are like the chameleons of borrowing, in that there is more than one way to look at using it. You can use your personal loan to tackle your credit card debt. To buy or lease a car, consolidate your loans or pay for that dream wedding or holiday abroad.
A personal loan provides a kind of flexibility that no other loan can. This flexibility has the potential to make a real difference in your life. However, the personal loan is often overlooked by borrowers as they are often overwhelmed by the ins and outs of understanding how a personal loan works.
While understanding personal loans can be confusing at first the more you educate yourself about them the easier it is to separate facts from fiction. To help debunk the common myths and misconceptions here are some common myths surrounding personal loans to help you decide whether getting one is the right fit for you and your financial needs.
APPLYING FOR A PERSONAL LOAN IS A LOT OF WORK
Applying for a personal loan has changed a lot thanks to the employment of technology. Technology has streamlined the personal loan application process, allowing you to apply for a personal loan online, from the comfort of your own home.
You can review the personal loan requirements online before you start the application process, ensuring you have all supporting documents. You can scan them and easily upload them to your computer. These documents include recent pay slips, a copy of your ID and proof of employment.
PERSONAL LOANS ARENT GOOD FOR EMERGENCY
There may come a time in your life where you need access to excess money quickly. If you don’t have an emergency fund saved for a rainy day then your obvious choice might be your credit card – however, one shouldn’t be too quick to discount the value and benefits of the personal loan.
It is often a common misconception is that personal loans take a long time to be processed, however, the process of getting a personal loan depends entirely on which financial institution you’re getting the loan from. Every bank has their own individual policies regarding loan approval and funding. However, these are not your only options, there are online alternative lenders who can offer you fast funding that may be worth exploring depending on your needs.
Its important as it is with any form of loan to pay attention to the fine print and the loan repayment terms. Try to focus of the interest rate, period and monthly repayment amount to ensure you are getting the best deal for you and your finances.
A PERSONAL LOAN IS THE MOST EXPENSIVE FORM OF BORROWING
It is one of the biggest misconceptions in finances is that personal loans are the most expensive form of borrowing. However, both personal loans and credit cards charge interest – but there can be a big difference between the annual percentage rates. However, what most people tend to forget is that your loan limit, interest rate and monthly repayments are directly linked to the quality of your credit score. If you have a higher credit score you may find that a personal loan offers a lower interest rate than a credit card does.
There’s also a difference in how the rates for personal loans versus credit cards are calculated. With a credit card, the rate is usually variable, meaning it’s tied to an index rate. If that index rate increases, your credit card APR rises as well. With personal loans, the rate may be fixed, meaning it stays the same over the life of the loan. This allows for more predictability in adding up the true cost of borrowing over time.
One thing to keep in mind is the potential for an origination fee. This is a fee some lenders charge upfront for a personal loan, and it’s typically deducted from the loan proceeds. If you’re applying for a personal loan with your bank, check to see if there’s an origination fee.
What loan will work best for you and your financial situation is dependant on a variety of variable – what the loan is for, what your credit score is, your income and who you’re taking the loan out with and what type of loan it is.
APPLYING FOR MORE THAN ONE PERSONAL LOAN INCREASES YOUR ODDS OF APPROVAL
Shopping around for a personal loan is a good idea, as there are so many viable options out there that it is better to do your research. However, there is a right way to do it and a wrong way to do it.
Every time you apply for a personal loan it registers on your credit report. Each loan inquiry may cripple your credit score and may actually work against your approval odds instead of your favour.
There’s a lot to consider when looking into a personal loan. The interest rate and fees are important, but it is also essential for you, the borrower to take time to compare your options so you can choose a loan that’s right for you and your financial situation.