Are you considering a personal loan? Avoid these 4 myths
Personal loans are fixed-rate, monthly installment loans that can be used for almost any loan purpose. They are widely used for debt consolidation, emergencies, home improvement, debt settlement, and more. Additionally, unlike a home loan or a car loan, most personal loans are unsecured, so you don’t have to mortgage an asset to get one.
Understanding the specifics of personal loans can take some time. If you don’t fully understand how they work, you may fall for some common myths about personal loans. Read on to learn what four of them are.
You can explore your personal loan options by doing Visit to Credible to compare rates and lenders.
4 Myths About Personal Loans That You Should Ignore:
- Personal loans cost too much
- Personal loans don’t work in an emergency
- Personal loans are only suitable for prime borrowers
- Applying for personal loans is difficult
Myth 1: Personal loans cost too much
Depending on your credit rating and income, personal loan rates can be over 30%. However, the average interest rates on personal loans are typically lower than the average interest rates on high yielding products like credit cards. For example, last February, the average credit card rate was 14.75% while the average 24 month personal loan was 9.46% Federal Reserve.
For this reason, personal loans are widely used to consolidate credit card debt. Using a lower interest rate personal loan to consolidate or other high yield debt can help you save hundreds of dollars in interest. If you’re curious what your personal loan rate and monthly payments might be, visit Credible for theirs Personal loan calculator and find them best personal loan rates.
Myth 2: Personal loans don’t work in an emergency
Unlike mortgage loans, personal loans do not require you to go through a closing process after applying for a loan. Because of this, in an emergency, personal loans give you quick access to the cash. For example, some lenders may deposit the loan amount into your bank account the next day after the loan agreement is signed.
Myth 3: Personal loans are only for prime borrowers
While it is true that the best personal loan rates and largest loan amounts usually go to borrowers who have good to excellent credit scores (670 or more) and high incomes, it is a common misconception that personal loans are only for prime borrowers .
Some lenders offer personal loan options to borrowers who have less than excellent credit ratings and lower incomes. For example, some lenders approve applicants with a credit score of only 580, a reasonable score on the FICO credit rating model. Although if you have bad credit you will most likely get a higher interest rate, you can still get a lower interest rate than a credit card.
To improve your chances of qualifying for a higher personal loan amount or better interest rate with a lower credit score on a credit check, apply for the loan from a co-signer with better creditworthiness and higher income, if allowed. Just try to repay the loan on time so that the co-signer’s creditworthiness is not compromised.
Alternatively, you can work on improving factors such as your debt-to-income ratio and poor credit score before applying for a personal loan. This could increase your chances of qualifying for a better rate.
To explore all of your personal loan options, visit one Online marketplace like Credible.
Technological advances have made it easier than ever to apply for a personal loan. In the pre-internet era, 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. All you need to do is fill in some personal information like your name, date of birth and income.
In addition, it is also easier to compare multiple lenders. If you pre-qualify for a personal loan through an online lender, you can compare the prices and conditions of several personal lenders digitally or via a mobile app within seconds before submitting the application.
Now that you understand some common personal loan myths, you should be able to make a more informed loan decision. Before deciding to take out a personal loan, you should consider all of the options in order to make the best personal finance choice.
And when you end up taking one out, you’ll learn how to manage them. For example, make sure you can repay the loan on time to avoid late fees and serious damage to your creditworthiness. It is important to understand how personal loans are different from business loans and a car loan as these two are secured loans and not unsecured loans.
For more information on personal loans, visit Credible to get in touch with experienced loan officers to get your questions answered.
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