At a Glance

Oftentimes, people hear the phrase personal loan and automatically several myths about personal loans jump into their heads. Depending on your personal and financial situation, personal loans can be excellent assistance for pesky bills, home renovations, medical bills, or other items you don’t have thousands of dollars saved up to handle. Let’s squash some personal loan myths so that you can see if this financing strategy is right for you.

It is hard to get personal loans

There are several factors that go into a personal loan application decision ranging from your credit score, income streams, credit repayment history, existing debt, and much more. Assuming you have a strong credit score and a solid history with credit, however, being approved for a personal loan will not be difficult. The more difficult task is ensuring the offer you are presented with is fair for your financial standing.

Related: Everything You Need to Know About Personal Loans | Credello

Personal loans are only offered by banks

While you would be forgiven for thinking personal loans are only offered by banks, online lenders and credit unions are two other commonly used sources for this loan type. In fact, when you are looking for a loan, you should consider all the above sources to see who can offer the best terms.

Personal loans require long processing time

In the past, personal loan processing times were not the quickest. The process can still take up to 30 business days in special cases, but most lenders will be able to turn around a decision for you far quicker, likely even the same day. The special case that may delay a decision is if something unusual is found when scanning your credit history, credit score, or your general background.

Related: How long it takes to get a personal loan | Credello

Personal loans are not available for people with bad credit

Another extremely common misbelief about personal loans is that you cannot be approved for one if you have bad credit. Personal loans for those with bad credit scores certainly exist, but it’s worth noting that the terms of those loans may be outrageously expensive. With a lower credit score, you will likely be charged a higher interest rate and fees, which will make paying back the loan more challenging.

Related: Personal Loans for Bad Credit | Credello

Personal loans hurt your credit score

Assuming you make all your loan payments on time and in full as required, having a personal loan will not hurt your credit score. Initially, you may notice your credit score drop slightly when you apply for the loan, but this is only since a hard inquiry into your credit (during the application process) can sometimes temporarily lower your score. After one month of good payments, you should notice your score return to where it was and even potentially improve if you maintain a perfect payment history.

Personal loans cannot be availed if you already have an existing loan

While existing debt is certainly considered during the personal loan application process, it is not the only factor considered. You can be approved for a personal loan with existing debt, and, in fact, some loans are specifically designed as debt consolidation personal loans that allow you to combine your debt in one place.

Personal loans always have high-interest rates

Of the misconceptions about personal loans, the belief that every loan comes with a high-interest rate is one of the more common. If you have a steady income stream, good-to-excellent credit score, strong history with credit, and verifiable personal and financial information, the interest rate you are offered should be more than reasonable.

Personal loans do not have a prepayment option

While there may be exceptions to this, most personal loans do come with a prepayment option. However, there can be a prepayment fee that you need to pay if you pay back the loan early, so it’s always best to seek out lenders who do not tack on this fee.

Personal loans require collateral

Unsecured personal loans are extremely common. Secured personal loans are typically only reserved for those with bad credit, unreliable income streams, or other special circumstances that pose a higher risk to the lender.

Personal loans can be availed by only salaried employees

Lenders will accept multiple forms for proof of income so long as you still pass the credit check. Bank statements and 1099s are very commonly used for income verification by self-employed or freelance workers.

It’s difficult to apply for a personal loan

The application process for a personal loan is extremely quick and easy. Here are the common steps:

  1. Gather all pertinent financial and personal information
  2. Determine the exact amount you need to borrow for the loan
  3. Research different lenders and compare any pre-qualification offers
  4. Apply and wait for approval
  5. Accept and begin repayments

While there may be smaller steps underneath each of those major steps, the process to receive a personal loan is not overly complicated.

Related: How to Get a Personal Loan | Credello

Taking a personal loan will only increase your debt burden

Adding on any form of debt should be taken seriously, and only done after evaluating your own financial and personal situation. However, assuming you are capable of making all payments to this new personal loan, as well as your old debt, while still maintain satisfactory discretionary income for your life, it will not be an additional burden of debt.

FAQs

The decision to take on a personal loan is one that varies from person to person. Take into account your own finances, personal life, existing debt, income levels, and other factors to determine if a personal loan is right for you.

Related: Are personal loans a good or bad idea | Credello

To get a personal loan, follow the steps below:

  1. Gather all pertinent financial and personal information
  2. Determine the exact amount you need to borrow for the loan
  3. Research different lenders and compare any pre-qualification offers
  4. Apply and wait for approval
  5. Accept and begin repayments

Always be sure to compare multiple offers, rather than settling for the first one thrown your way.