Busting the Biggest Myths About Taking Out a Personal Loan

Financing is probably one of the things that is most misunderstood by the public. There are tons of misconceptions and half-truths floating around about credit in general, and these can lead to some people getting discouraged from applying for a loan before even trying. However, it’s important that you understand how credit actually works and how lenders decide who they lend money to if you want to not only improve your chance of getting a loan, but avoid making crucial mistakes that could hold you back. Here are some of the most common myths about taking out a personal loan.

The APR that’s Being Shown is the One You’ll Get

The annual percentage rate, or APR, is one of the first things people look at when they take out a personal loan. The APR can give you a good general idea of how much your loan will cost you in its entirety, and can be used as a reference.

However, you should be careful when looking at advertised APR rates. In reality, lenders only have to offer this rate to 51% or more of all applicants. This means that the 49% that’s left can get offered a totally different rate. This is why we say this should only be used as a reference, and not as a definitive.

At the end of the day, your personal finances will dictate what kind of APR you can expect to get. So, if you’re unsure about your credit situation, then chances are you won’t be eligible for the best rate.

Taking Out Loans Will Hurt Your Credit

This is more of a misconception than a downright myth. Yes, it’s true that multiple “hard searches” on your credit report in a short time will affect your credit score. The reason for this is that it may show lenders that you may be desperate for credit, which is never a good sign.

However, getting a loan and being responsible with it is one of the best ways to build your credit. If you can take on this kind of debt and make payments consistently, you’ll not only improve your standing with your credit agency, but the lender as well.

This is because credit score is not the only criterion that lenders will use to see if they can give you a loan. You also develop sort of an in-house credit score with the people you deal with, and if you were good on the last loan, they might offer better loans for you in the future. They will also be more inclined to lending you money later on if your financials haven’t changed. The application process will also go much more

The More Applications You Make, the Greater the Chances

At the other end of the spectrum, you have people who think borrowing money is a numbers game and that you have to take a scattergun approach. However, this could be disastrous for your credit score for the reasons we mentioned earlier. The best approach here is to check eligibility first with the right tools and only apply for those you feel you have a 100% chance of getting accepted

There is No Chance if You Have Bad Credit

This is simply wrong. While it might be tougher to get financing without good credit, it’s not impossible. One alternative, for instance, could be to consider a short term loan. Services like New Horizons can hook you up with multiple lenders who might be more open to people like you. They have lenders who offer short term loans and have more lenient loan acceptance requirements. You should also check their website as a resource on how to get financing with poor credit, and the alternatives that are open to you as

Loans Are Expensive

A lot of people also have this idea that loans are just a bad idea because of how much they cost. However, this largely depends on who you are and what type of loan you’re seeking out.

Payday loans, for instance, take the cake when it comes to fees, and should only be used as a last resort. But, if you have okay credit and are not looking for crazy terms, there are tons of options open to you, so shop around.

The thing you could do, again, is check a few eligibility calculators. You should check some APR calculators as well. Some will allow you to see exactly what you can get and what type of true APR you can expect as well. You’ll then be able to break down which options would be the best for you and apply.

These are some of the most common myths about personal loans, and some of the most pervasive as well. Instead of going by false beliefs, do your research and learn what it takes to apply and qualify for a loan, and what makes a responsible and creditworthy borrower as well.