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14 Common Misconceptions about Personal loans
If you do not have enough money to pay your bills, then a personal loan can be very helpful. If this is the case, why are a lot of people still very skeptical about personal loans? This is because there are a lot of misconceptions about personal loans. Let's take look at some of the most common and discuss why they are not true.
1. You Need To Put Collateral
With personal loans, you do not need any collateral. It is because of this that personal loans are also known as unsecured loans. However, the catch here is that the interest rates are a bit higher than the rates of collateral loans.
2. You Need Good credit History
With personal loans, the lender will not base his approval on your credit history. The credit history does, however, affect the amount that you can get.
3. Personal Loans Require a Long Processing Period
Since personal loans do not require any collateral, then the processing of the loan will not take very long. In fact, you may get your money within or after 24 hours.
4. You Can't Get Much Money
Most people actually believe that you can only get a little bit of money from personal loans. The truth is you can get as much as you need. The amount that you will get will depend on your agreement with the lender. The reason as to why most people would opt to borrow just a little bit is because personal loans have high interest rates.
5. Personal loan Rates Vary Greatly Per Lender
Most people think that the rates of different lenders vary greatly. The truth is that usually, lenders would charge only 1% to 5% interest fees. The extra amounts are fees that a lender would charge aside from the interest fee. For you not to be misled, you must always ask the lender what exactly the fees are before you borrow.
6. People with Bad Credit Are Charged Higher Interest
Your credit rating will not have much effect on your interest rate. If you borrow from a financial institution, your rates will be the same as the other borrowers. The only difference is the amount that you are allowed to get.
7. Personal Loans Are the Most Expensive
It is wrong to say that personal loans are the most expensive ones out there. Payday loans are way more expensive than personal loans because you don't have control when you pay the loan. If you secure a payday loan, not only will you be charged high interest, you can only pay when your paycheck comes.
8. If You Have Bad Credit, a Collateral is Required
Again, only secured loans will require you to put a collateral. Even if your credit is bad, you will still not be required to put collateral. Some lenders may require you to put a collateral if your credit rating is extremely bad, but this is done only in some special cases.
9. You Cannot Secure Multiple Loans
What if you secured a personal loan but still need some extra money before the payment deadline? Can you still borrow from the lender? The answer is yes. Of course, this will depend on whether the lender will want to lend you more money if you have an existing account with him.
10. Multiple Loans Can Kill Your Credit
If you have multiple personal loans that you cannot pay, then your credit rating will drop. However, if you have more than one personal loan but you can manage all of them, then your credit rating will be fine.
11. You Can't Use a Personal Loan to Pay a Debt
The reason as to why most people believe this is because they would usually pay different debts with different interest rates. If you really want to maximize your personal loan, pay off all your debts with it so that the only thing you will worry about is the loan.
12. You Can Only Apply in One Institution at a Time
Although not a very good idea, it is possible to apply for several loans at several institutions. This is usually done if the borrower needs to get more money but his existing lender will not grant him more.
13. Personal Loans are Scams
This probably stems from the fact that the interest rates are very high. The reason behind the high interest rates is that there is no required collateral. So in order to protect themselves, institutions really need to charge higher interest rates.
14. Apply for More Than You Need
Never apply for more than you need because the interest rate might kill you. Only apply for as much as you need so you know how to budget your money properly.
