Personal loans can often come with an unfair reputation and for those who seek flexibility in a loan, they can be invaluable. Around 15% of Canadians have used a personal loan for debt consolidation. But do you know how to sort the fact from fiction when it comes to this money lending option?
If not, then Kingcash is here to assist. Read on as we discuss the common myths associated with personal loans.
1. Personal Loans Require Collateral
Not all personal loans require collateral. This depends on if you are getting a secured or unsecured loan.
Unsecured loans don’t require any collateral. Instead, they will require proof of income that proves you can pay the money back. The lower your credit rating is, the higher your interest rates will usually be to mitigate the risk.
Secured loans will provide a lower rate of interest, but will require collateral. This can be dangerous if you default, as it will be seized. You may end up losing your savings, car, or property.
Check if the loan you are applying for is unsecured or secured. Weigh up the risks and see which is best for you.
2. They Are an Expensive Way to Borrow Money
All loans will have interest rates attached to them. However, personal loans can often have lower rates than other types of loans. It all depends on what those loans are.
In the US, the average interest rate on a personal loan is around 9% while credit cards are about 14%. However, none of this takes into account the fact that you may not qualify. Lower interest rate loans are only offered to those with excellent credit so if you have a high debt to income ratio or credit score, larger rates are going to be the only option available.
You can work on bringing rates down by improving your credit score. Start to pay bills on time and pay off as much as you can before taking out a loan.
3. You Should Apply for the Maximum Loan Possible
The logic of this personal loan myth is quite sound on the surface. It always helps to have extra cash on hand in case of emergencies. However, remember that the more you loan, the bigger your payments will be.
Larger loans can also take longer to pay off which inevitably means you end up paying more back. To save money, work out what you need and take out the exact amount so it is paid back quicker and cheaper.
4. Only Banks Give Personal Loans
There was a time when personal loans could only be gained by going into a physical location. However, digital technology has meant there are now numerous online lenders that can offer money.
Online lenders have an advantage, as they don’t have the overheads associated with running a brick-and-mortar location. Savings can then be passed on to the people they loan money to. This can result in lower rates or reduced fees.
As they don’t have the lengthy processes of banks, you can get instant loans from many of them. Funding can often be received within 24 hours or less and a decision is made on the spot. This makes them a great option for anyone who needs money instantly.
5. You Must Have a Good Credit Score
Not all loans require a good credit score as part of their personal loan requirements. Almost anyone will be able to get some form of a loan. All you may need is someone to cosign the loan for you or you may need to put up collateral.
What you must understand is that the better the credit score, the better the deal you will get when money lending. A high credit score proves you can pay back and are financially trustworthy. This gives you access to better rates and terms.
With bad credit, you are going to get the opposite. Consider paying down your debts and improving your credit rating if you feel you may need a loan in the future to access better deals.
6. Applying for Multiple Loans Increases the Chances of Being Approved
Applying for multiple loans from different money lending services does not always increase your chances of approval. In most cases, it can do the opposite.
Every time you go for a loan, lenders will usually take a look at your credit history which includes a record of loans you have applied for in the past. Multiple loans in the same period can often show that someone is in serious financial difficulty.
Instead of applying for multiple loans, do your research. Shop around for ones that are most likely to accept you and offer the best rates.
7. It’s Better to Apply for Specific Purpose Loans
This one could be true depending on what you intend to get a loan for. For example, you are only ever going to buy a property with a mortgage loan. A renovation loan will be tied to your contractor quote, but may also offer lower rates.
However, if you cant get approved for a specific type of loan then a personal loan will be the next best alternative. One of their advantages is their flexibility. You don’t need to tell the lender what you need to money for.
Getting Assistance From Kingcash
Now you know the personal loan myths, you can begin to decide if they are the right option for you. Don’t be afraid to shop around for rates and to see which loans suit your current financial situation.
Kingcash should be your first stop for quick, easy loans. We have same-day decisions with no credit check due to our advanced technology. Click here to apply for your loan today.