4 Misconceptions About Personal Loans
Personal loans are a common form of financing for nearly any possible purchase. CNN Business defines personal loans as money borrowed from a bank, credit union, or online lender and paid back in installments over time with interest. They're available to almost anyone and can be used for various expenses. Despite the widespread availability of personal loans, they are still met with apprehension from potential borrowers. As with any significant financial decision, getting a personal loan can be daunting and even more so with the many myths surrounding it.
This article will debunk common misconceptions about personal loans:
Myth: Personal loans are only for serious financial concerns
Personal loans can indeed be a good way to handle big financial emergencies. But many also apply for personal loans to cover everyday expenses like groceries or gas. In fact, a guide to personal loans for vacations by Sound Dollar outlines that personal loans can be used to finance the costs of hotels and airfare. A vacation loan, they explain, is like any other type of unsecured personal loan. Your loan amount and interest rate will largely depend on your credit score. As is the case with personal loans, in general, vacation loans are handy because they give you a bulk amount of money so you can make your payments right away. So, while many believe that personal loans are for people in dire straits, they can actually be used for a wide range of expenses.
Myth: Only salaried individuals can apply for personal loans
While it's true that some lenders only offer personal loans to employees receiving regular paychecks, others will consider applications from people of all financial conditions. If this is your situation, consider getting a co-signer to strengthen your loan application. Our post entitled "Cosigning: How to Find a Co-Signer" explains that a co-signer is someone who agrees to be financially responsible for repaying your loan if you're unable to pay it back on time or in whole. This is an excellent option if you want to borrow money but don't have enough income or assets to qualify for a loan on your own.
Myth: Personal loans require collateral
It is a common belief that to get a personal loan, you must put up collateral. This is far from the truth. Most banks and lenders do not require collateral from applicants for unsecured personal loans. This means you can get a personal loan even if you do not have assets. Your repayment capacity is the only thing that matters when it comes to personal loans, and it can be measured through your credit score and income history. Even without assets, your financial records can demonstrate that you're a responsible borrower and a good candidate for the loan.
Myth: You can't get a personal loan if you have other debt
With the rising cost of goods and soaring inflation rates, Americans have been accumulating debt from various sources to augment their expenses. Having student loans, credit card debt, and mortgages can put off people from personal loans despite their benefits. The truth is, while many lenders will take into account your overall debt level when approving your loan, debt is not a deal-breaker. In fact, if you regularly pay your debt, this can strengthen your chances of qualifying for a personal loan. Additionally, getting a personal loan can help you get ahead financially. This is because you can also use personal loans to pay off other debts. Furthermore, a personal loan can help you consolidate all your existing debts into one lower-interest loan with a shorter term. This makes it a good way to tackle multiple debts and save money on interest payments.
Personal loans are not as complicated as they may seem. They can help you overcome financial hurdles as long as you know how to manage them. If you have the right qualifications and can pay back the loan promptly, personal loans can be the ideal solution for your financial needs.