Most of us at some point will take out some form of loan in our lifetime, yet the industry is rife with myths and falsehoods – many which put off new borrowers from applying. Here are some common myths that don’t stand up to scrutiny:
You Can’t Get a Loan with a Bad Credit History
Although you won’t be able to access the best loan products and best interest rates if you have a poor credit score and overall history, this doesn’t mean you are automatically shut off from borrowing. Today there are several options available to you, including payday loans (small short term loans with high interest rates) and credit unions (designed specifically for those with poor credit). Companies such as Emu.co.ukspecialise in offering loans of this nature with no credit checks specifically catered for those with bad credit.
Applying For Loans Is a Hassle
While applying for a loan used to be quite a long winded process full of paperwork and even face to face meetings, today both large and small lenders typically offer online applications that can be completed within minutes if you are well prepared. There are also services that allow you to apply to multiple lenders from one form, so you don’t have to waste your time going to each one individually. It is still however wise to do your own research and ‘shop around’ for the best lenders.
Banks Will Offer the Best Deal
Your bank may be large and shiny institution but that does not necessarily mean they will offer you the best loan products or rates. Every lender has different policies, so you should always do some research first.
If You Are Rejected Your Score Will Drop
A single rejection from a lender will not have any significant impact on your credit score, however applying for lots of different loans with different lenders and suffering multiple rejections could give the wrong message to other lenders. It is therefore important to know the basic requirements needed to obtain your chosen loan and make as few applications as possible. Some services provide a ‘soft search’ feature that doesn’t touch your credit score at all.
If In Debt a New Loan Will Make Things Worse
Only you will know your own financial situation, but taking out a new loan to pay off an existing debt can actually be a very wise move if the interest is lower. This is especially true if you have many different outstanding loans at different rates, and these are confusing you. In this scenario you may even seek out a ‘debt consolation’ loan, which is designed specifically to pool all of your debt together for easier management.
You Should Ask For More Than You Need
Many borrowers fall in to the mind-set of asking for more than they need so they can buy a little extra or even ensure they can pay off the first payment without thinking about it, however lenders will only lend what they deem to be reasonable and asking for too much could trigger a rejection. Also don’t forget that the larger the principal the more you may end up paying in interest if the term length is the same.
If You Default You Could Lose Your Home or Go to Prison
The only time your home or other property can be automatically seized when you default on a loan is if you have pledged it as collateral in the contract. Most personal loans are unsecured and do not require collateral. Debt collection agencies are within their rights to recover money owed by seizing items of value from your address that belong to you, but this is only possible if you let them in or leave your door open. Furthermore in modern Britain there are no such things as debtor’s prison. Failing to pay back a loan is generally a civil matter and you will not go to prison over the matter.
Personal Loans Are For Personal Use Only
While (as the name suggests) personal loans are for personal use – such as funding a material purchase or going on holiday, there are no actual restrictions in place on how you should spend the cash and in most cases you won’t be asked. You can on theory use it to invest, fund your business, or pay off existing debts. That being said there are many different loans for different situations and you may get better rates seeking these out than using a personal loan.
You Can Only Have One Loan at a Time
As long as you have a good credit score and meet a lender’s criteria there is nothing stopping you having more than one loan out at the same time, in fact some lenders even permit you to have more than one loan product from them themselves. That being said, once your outstanding debt reaches a certain level it may become difficult to obtain new credit.