Taking out a loan is not as complicated as it may seem, despite the many myths that surround this subject of our finances. In fact, most Americans will take out at least one form of loan in their life, whether it be a mortgage loan, car finance, or even a mobile contract.
So, to try and clear up some of the most common myths around loans, we have put together this article to debunk the myths that we know not to be true. Keep reading to find out more!
Table of Contents
Myth 1 – Loans Are Bad For Your Credit Score
Many people are of the opinion that applying for a loan can negatively affect your other finances, like your credit score. However, this is not entirely true as it is never that simple.
Defaulting on a loan will clearly have consequences, but provided that you take out a loan and proceed to pay it back on time per your repayment schedule, there should be no hugely negative consequences. You can even reduce your rates, which leads us to our next point…
Myth 2 – Personal Loans Have High Interest Rates
False! The majority of personal loans will actually have much lower interest rates compared to certain other types of credit loans, such as using a credit card. This can mean that you end up paying more in the interest fees than you even needed to borrow in the first place!
The fact of the matter is that different types of loans will offer various different interest rates, so it is in your best interests to do some research and compare what rates are available.
Myth 3 – Loan Applications Are A Long, Tedious Process
Don’t get us wrong, they are hardly a walk in the park, but loan applications are hardly as difficult as they are sometimes made out to be. No longer are there ridiculously long waiting times at the bank to wait through, or multiple forms and pieces of paper to fill out.
These days, you can usually apply for a loan from the comfort of your own couch by applying online. Most lenders will have portals that you can use for loan applications and they are often much better at keeping you up to date with the progress of your application for a loan.
Myth 4 – Specific Loans Are Better Than General Loans
Another myth that is simply not true is the idea that taking out a specific loan is a better option compared to taking out a more general loan that can be used for any purpose. In fact, the flexibility and versatility of personal loans, for example, can actually be hugely beneficial.
This will give you full autonomy over how your loan is used without even needing to share these reasons with your bank or lending institution. Whether you are paying for a wedding or putting your loan towards covering your existing debt, a general loan can be a great option.
Myth 5 – It Is Better To Apply For More Than You Need
Wrong again! We are not entirely sure who came up with this one, but whoever did needs to have a stern word with themselves in the mirror, as this is definitely not a good idea.
Of course, there is some merit to the idea that it is better to have more than you need in order to allow for surprise expenses that you did not expect to crop up, but this can also leave you saddled with debt that you did not actually even need to acquire in the first place.
Borrowing more than you need before you actually need it could actually cause problems down the road if you are in a position where you need to apply for another loan but you are not able to as you have already exceeded the total lending amount that you can borrow.
Furthermore, the higher the loan amount, the higher the monthly repayments, which could see them costing more than you can actually afford to pay towards the loan each month. This can result in late fees and charges as well as having a negative impact on your credit score, so it is rarely worth applying for a loan that is bigger than what you currently need.
Final Thoughts
As you can see, there are quite a few myths out there regarding loans that have no merit. Do not let these falsehoods put you off, but only apply for a loan if you need one.
