Get your facts right about personal loans, because they can make your life a whole lot easier. If the thought of a personal loan makes you nervous or confused - it really shouldn’t. From fast approvals to no collateral, personal loans are one of the smartest financial solutions. And yet, most of us often use it as a last resort. This is mainly because of the myths which surround the concept of a personal loan, as a result of which people go for options which are not just financially demanding, but also take more time and often require higher interests. There are several things you need to get right about your knowledge of a personal loan.
Personal loans are loans which are not secured against an asset like your property, or cash. Which is why they are often called unsecured loans since it does not require security. You can use the said loan for any purpose you like, such as medical emergencies, funding your start-up or vacations. Like any other loan, you must agree to some terms before you can borrow it. Earlier this year, a report by LendIt claimed that more and more millennials are opting for personal loans, to cover their student debts or to start their independent ventures. The fact that you need minimal documentation and the option of online application are the two most appealing features for the millennial when it comes to unsecured loans.
Most people in their 20s do not usually have significant outstanding debts, other than their student loans, which makes it easier for them to get a personal loan. Moreover, the fact that it does not require collateral is always helpful to a millennial, many of whom are just starting out with their first jobs. There are some unfair myths about personal loans which often mislead people, and you must not let them confuse you. Here are some of the common myths surrounding personal loans.
Interest on personal loans is usually higher
Most people believe that personal loans charge more interest rates than secured loans, but that is incorrect. Did you know that if you have a stable credit score interest rates on personal loans can start from as low as 10%? A good credit score and repayment capacity does affect your interest rate and will benefit you. Alternatively, it is possible that your appeal for a personal loan gets refused owing to a substantial amount of outstanding debt.
The process takes too long
Borrowers often assume that unsecured loans take a long time to get approved, but that is simply a myth. Personal loans usually require minimal documentation and are often processed faster than secured loans, especially if you are doing it online. Banks generally have pre-approved offers, and the entire process only takes 2 to 3 days. It has also been proven that the younger generation makes the most of the online route as they do not have to go through the tedious face to face interaction. Several millennials have made their first big purchase through a personal loan.
You are not eligible for a personal loan if you already have a loan
It doesn’t matter if you already have an existing loan, you can still apply for a personal loan. It all depends on your repayment capacity. When you apply for a personal loan, the lending party will assess your income and all other outstanding debts and EMIs, and then factor that in a while measuring your repayment potential. And if your capacity suits the terms, you will be eligible for a personal loan.
They can only be used for personal expenditure
A personal loan is named so, as the borrower does not have to state what he or she intends to do with it, unlike a home loan or an auto loan. So, you can use your loan for anything you like. For instance, paying medical bills or financing someone’s education. Many people resort to personal loans to fund their start-ups or kick-start their independent businesses.
A personal loan traps you in debt longer than a secured loan
This is not true. Like every loan, personal loans also have a fixed repayment period. In fact, some lenders offer a more flexible repayment deadline for personal loans. But you need to keep in mind that longer the repayment period, the longer you have to keep paying an interest every month.
Personal loans are bad for credit
Personal loans are in no way, bad for your credit. In fact, they can help you improve your credit score. You have to be careful about the amount and the interest rate and weigh all your options before you sign up for it and pay your EMIs regularly. Experts also advise against closing the loan prematurely, even if you do have the fund to do so, as it affects your creditworthiness.