When you’re in school, you spend so much time learning different forms of math like algebra and trigonometry. If you’re like most of us, your coursework said barely a word about personal finances. Then you grew up and realized what a complex balancing act it takes to keep your finances in order.
This is probably why a recent study by Champlain College’s Center for Financial Literacy showed most states would not get a passing grade for their financial understanding!
There are plenty of financial topics that people misunderstand. Without a doubt, though, personal loans account for many of the most common money myths.
You can change that today by learning the truth about these personal loan myths.
Our take:Lender focused on poor credit, based out of Chicago currently offering loans in 29 statesAPPLY NOWLender: OppLoansCredit ScoreLoan Size/AmountLoan TermAPROrigination Fee350 – 600$500 – $5,0009 – 2459.00% – 199.00%0.00% – 3.00%
1. A Personal Loan Will Hurt Your Credit
Credit is one of those things that people tend to underestimate until it stops them from buying or doing something they want. It’s understandable that you’re concerned about your credit score, but personal loans aren’t the enemy.
Getting a loan won’t hurt your credit by itself. Applying for the loan can hurt your credit if you’ve applied for credit two or more times in the past year already. However, the impact tends to be small.
The other way a personal loan can hurt your credit is if you stop making payments. It’s no different than the way it would hurt your credit to stop paying your credit card bill.
In fact, some people use personal loans as a fast way to improve their credit score.
Part of what affects your credit is your total balance on your credit cards. Getting a personal loan to pay off or pay down those balances can boost your credit score in a hurry. The balance on a personal loan doesn’t lower your credit the way a credit card balance does because it isn’t “revolving credit.”
On top of this, making consistent payments on a personal loan builds your payment record. Over time, this improves your credit.
Our take:Online marketplace to find you a personal loan offer that matches your needsAPPLY NOWCredit ScoreLoan Size/AmountLoan TermAPROrigination FeeAll can apply$100 – $15,0001 – 605.99% – 35.99%Varies by lender
2. Getting a Personal Loan Is an Extensive Process
Some people shy away from getting personal loans, saying, “It just sounds like so much work. I don’t have time for all that.”
In truth, getting a personal loan today is far easier than you think. Gone are the days of dressing up like you were going to a job interview and trying to impress your banker.
Today, you can apply for a personal loan with a few clicks online. It’s a quick process you can do at home and move on with your day.
3. Personal Loans Are for People Who Can’t Pay Their Bills
There is a misconception that the only people who need personal loans are those who are irresponsible with their money. This couldn’t be further from the truth.
Yes, you can use personal loans to make ends meet when an unexpected expense arises. That situation can happen to any of us, though. It’s also far from the only reason people get personal loans.
You can use a personal loan to pay for almost anything. You can start a business, consolidate your debt, or throw the wedding of your dreams. In fact, it’s often a more affordable choice than putting those expenses on your credit card.
4. Personal Loans Have Sky-High Interest Rates
Not everyone deserves the reputation they have, and personal loans don’t deserve their reputation of being expensive, high-interest money pits.
As with any other type of loan or credit, interest rates for personal loans vary massively.
First of all, consider that not all personal loans are the same. You can choose a secured loan, in which you put up something you own as collateral. These have lower interest rates than unsecured loans: personal loans with no collateral.
Second, remember that there are countless loan providers out there. Some offer better rates and policies than others.
Finally, don’t forget that your credit score plays a role. Two people could get the same type of loan for the same amount and one could pay twice as much in interest because of their credit score.
This is why it’s so important to shop around for your personal loan. Find out what your options are and whether you have anything you can provide as collateral. Research loan providers and the loans that best fit your situation.
Comparing Total Interest Costs Between Loans and Credit Cards
It’s also important to keep in mind that even if a credit card and a personal loan have the same interest rate, you could pay less overall with the personal loan.
Personal loans have structured payment plans so you’ll pay off the debt in a reasonable amount of time. Credit cards give you a very low minimum and say, “pay whatever you want as long as it’s above this minimum.” You’re likely to pay less per month because you can, and this racks up interest charges over time.
5. You Need Exceptional Credit to Get a Personal Loan
Personal loans are common, but they may not be as common as credit cards. Some people assume this means that they’ll need very high credit to get a personal loan.
This isn’t true. A high credit score will help you, of course, by giving you more options and a better interest rate. However, plenty of people with low credit scores get personal loans on a regular basis.
In fact, there are loans that are designed for that purpose. A personal loan for bad credit can offer you a better chance to get the cash you need.
Learning the Truth Behind Money Myths
The world is full of money myths. Some are matters of opinion while others are outright falsehoods.
The good news is that we live in the information age. You can get the correct answer for almost any question you want if you know where to look and who to trust. The personal loan myths above are a great place to start.
If you’re in the market for some cash, learn more about our personal loans and other financial products by visiting Bonsai Finance and looking through our helpful blog.