Sometimes an unprecedented emergency can agitate your finances. In such situations, taking out a Personal Loan can keep you from exhausting your savings. However, there are several myths surrounding Personal Loans, making people apprehensive about taking one. In this article, we’re busting 8 common myths deterring you from taking a Personal Loan. ⭐Personal Finance ⭐Money Management ⭐Personal Loan myths
A personal loan is a fixed amount of money that you borrow from a lending institution, usually repayable over fixed monthly instalments. When you take out a personal loan, it is important to steer clear of the risk of encountering myths. Sometimes we may even refrain from personal credit due to the fear that these myths instil in us.
Personal loans are a handy tool to bridge some financial gaps caused by an emergency. Therefore, we want to debunk some of the most common myths surrounding personal loans and credit, to help you get a better understanding of the concept.
1. Guaranteed Personal Loans are a good option
Guaranteed personal loans are essentially short-term loans that prey on people with poor credit and low income. Several people falling under this category believe that their options for loans and credit are limited. This is the reason these people fall for the ‘guaranteed’ gimmick. While this is actually just like any other short term loan, but with extortionate lender fee as well as the interest rate. Payday loans are the most common type of Guaranteed personal loan.
These types of loans usually charge £10 to £30 per £100 of the principle. So if you’re borrowing £300, per se, for an unforeseen emergency, and your lender levies £15 on every £100 of the principle, you will end up paying on an APR of approximately 400%, amounting to £345.
With an exorbitant fee and interest rates over such short terms, opting for guaranteed loans may put you in a debt trap. It is better to avert this risk and look for alternative options before resorting to this option. If you feel you have limited lending options, try working on improving your credit score.
2. No Credit-check loans are a ‘safe’ option for quick cash
No credit check loans are the ones wherein a lender does not perform a credit check on the borrower’s profile. These lenders generally judge an application based on a person’s income, employment as well as financial history with a bank. If your credit score lacks lustre and your income is low, you may tend to believe that you have limited borrowing options. Now if you make multiple loan applications, all lenders will put your profile under scrutiny to check your credit score. These checks will further harm your credit score, making it even more difficult for you to get approval.
In a vulnerable state like this, you might that a ‘no credit check’ loan is your only hope. However, it is important to weigh the pros and cons before considering this loan. Just like Guaranteed personal loans, these loans may come at an outrageous three-digit APR, for instance, 400% APR on a loan of £100. These loans have a relatively shorter loan term, so you may end up paying a large amount of money in a short period of time. Some predatory lenders may not even check your ability to repay before lending you the money.
Since ‘No credit check’ loans are saddled with more cons than pros, it is better to be safe than sorry.
3. Checking my score frequently will affect my credit rating
You can check your credit score as many times as you wish. Checking your credit score will have no impact, whatsoever, on the score itself. It is smart to keep your credit score in check as you will have the chance to identify discrepancies and fix them.
What does affect your credit score, however, is multiple loans or credit applications in a period of time, as lenders would evaluate your application through a credit check.
4. You can get ‘credit blacklisted’
The concept of credit blacklisting does not exist. No lender can blacklist your profile based on your credit score. Lenders evaluate your application based on all the information available to them through your credit report. Your loan application may or may not get approval based on this information. Even if your application gets rejected each time you apply, it does not mean that you’ve been blacklisted. It is, however, an indication that you might need to amp up your financial management, in order to improve your credit rating.
5. Criminal records or fines can harm my credit history
Your credit history does not take into account criminal records or penalties, except for a County Court Judgment (CCJ). A County Court Judgment can be issued in your name when you default on repayments against the borrowed money. CCJs can stay on file for 6 years after the judgment is passed.
6. My partner’s credit report may have an impact on mine
Your partner’s credit score would have an impact on yours only if you are financially associated. Financial association refers to joint credit agreements, a joint overdraft, or mortgage, per se. If your partner does not have a stellar credit score and the lender you want to borrow from uses associate data during the evaluation, then a joint agreement might pose a threat to your application.
7. My previous tenants may affect my credit history
Since your credit report contains information that identifies you personally, the actions of any other individual will have no impact on it, whatsoever. As long as the information on your credit score is a 100% accurate, with no fraudulent activity, your credit score won’t be affected. However, any incorrect information provided at the time of your loan application to the lender may lead to rejection.
8. My credit score is what solely determines the success of my loan application
Your credit score may be a major factor contributing to the approval of your application, but it certainly is not the only determinant. While it is good practice to maintain a healthy credit score to improve your chances of getting approval for a loan, it does not ensure that you will get one. Maintaining a good overall financial history and registering on the electoral roll can also help your case while applying for a loan.
Personal loans or credit can help you out in situations of emergency. Understanding the truth behind these myths can help you in making a better decision on the off chance of an unforeseen event.
For days when you need some financial aid to your rescue, we’re here to help you out!
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