10 Common Misconceptions About Loans
In these tough economic times, many people struggle with their finances. Needless to say, managing your finances effectively and sticking to a budget are of the utmost importance, but even with careful planning, we can find ourselves strapped for cash in many situations. It’s these situations where you might consider obtaining a personal loan.
Of course, it’s important to be responsible when it comes to borrowing money and only do so if you know you’ll be able to keep up with the costs of repayment. If you fail to keep up with payments, interest rates can spiral out of control and your credit rating can take a serious hit.
However, there’s usually nothing wrong with responsible borrowing as long as you fully understand what you’re getting yourself into. It’s important to always read the small print and compare a range of providers before agreeing to any kind of deal. At the end of the day, reputable money lenders only want to lend money to people they believe are in a financial position to pay them back.
Below, we’re going to debunk a few common misconceptions about loans so that you can be better informed when it comes to choosing who to borrow money from.
Only Banks offer Personal Loans
Most people firstly think of their bank when they need to borrow money, but sometimes, the bank may be unable or unwilling to lend you cash for a huge variety of reasons. However, banks aren’t the only companies in the business of providing loans.
Payday loans can be utilised if you need a relatively small amount of money, as long as you are confident you can pay them back quickly. If you fail to pay them back on the agreed date, the interest rates will cause the costs to skyrocket.
There’s also the option of asking close friends and family to lend you some cash, but they might not be in a position to provide you with as much as you need. Alternatively, you could ask them to be a guarantor so that you could try to obtain a guarantor loan.
All Loan Providers Offer Similar Rates
If time is of the essence, you might be tempted to think that you don’t need to compare money lenders thoroughly because they probably all offer similar rates anyway. However, this couldn’t be further from the truth. When it really comes down to it, money lending is a business, and that means the industry is extremely competitive. As a consequence of this competition, interest rates can vary wildly. If you want to be confident you are getting the best deal with the best terms, including interest rates, you’ll need to do your homework and shop around.
Obtaining a Loan takes Weeks
If you are in desperate need of a cash injection, you might be worried about how long it is going to take for the loan to reach your bank account. With some money lenders, the process could potentially be long and drawn out, but many financiers will be able to provide you with funds very quickly.
It’s actually very simple to apply for a guarantor loan thanks to an application process that can often be completed in a matter of hours, but certainly in less than a day. Plus, as long as you provide the lender with accurate information along with details for your guarantor, you could receive your loan in less than 24 hours. Of course, the process could potentially take a little longer than a day if extra documents are required, but you can be confident you’ll receive your much-needed funds quickly when time is a factor.
In addition, just about any UK homeowner with a stable income aged between 18 and 78 can be your guarantor, so you do have other options if your close family feels uncomfortable with the idea.
PPI is a Terrible Thing
Payment Protection Insurance (PPI) has received a lot of bad press in the UK in recent years, but it’s the fact that it was wrongly sold to a large number of people that was the problem rather than the product/service itself.
PPI is designed to protect you if you are unable to pay your loan as a result of a temporary loss of earnings in addition to a range of other factors. It might be genuinely ideal for some borrowers, though it’s worth shopping around for the best deals instead of automatically purchasing it via your money lender.
The Best Interest Rates are offered to Current Account Holders
Many banks will offer their most favourable interest rates to their existing customers, but that doesn’t necessarily mean that they are the best interest rates on offer. Of course, they are telling you the truth when they say the rates they offer their current account holders are lower than what they offer new customers, but many money lenders will still try to beat them in order to win your business. You should always compare a variety of finance companies before making your final decision.
You Can’t Obtain a Loan if you have a Poor Credit Rating
You might think that there is no way you could possibly take out a loan if you have a bad credit rating, and that might be true when it comes to borrowing from the banks. However, banks aren’t the only organisations in the business of lending money.
Payday loans are quite easy to obtain for most people regardless of their credit rating, though admittedly, they’re best used for short-term loans and for small amounts of money. If you need to borrow into the thousands, a guarantor loan might be an ideal option.
As long as you can find somebody who trusts you to guarantee you’ll make your payments, you won’t need to have a good credit rating to obtain a loan. You will still have to prove you have a stable income, but they’re great for when the banks won’t give you a second look.
You’ll need to Risk your Assets to Secure a Loan
Many people assume they’ll need to offer up their property, vehicle or another expensive asset as a means to secure a loan. Of course, we all fully intend to keep up with our monthly repayments, but you can never predict the future with accuracy. You don’t need to risk losing your home with an unsecured loan. Admittedly, you might be offered a lower interest rate if you do offer some collateral, but if you’d rather not risk losing your most valuable possessions, unsecured loans could be a better option.
Personal Loans have the Highest Interest Rates
It makes sense that if you want to borrow a lot of money, you’re probably going to have to pay enormous interest rates to give the money lending organisation confidence that they are going to get their money back as well as make a profit. However, this isn’t always the case. Sometimes, credit card interest rates can be much higher than the rates that come with personal loans.
Consolidating Loans is the Best Financial Option
If you’re in a situation where you have mountains of debt accumulated through credit cards, previous loans, and store cards, you might assume that you should look to consolidating them all to make life easier. However, you will likely end up paying more to eliminate all that debt in the long run if you choose the consolidation option. On the other hand, you could consolidate them into a long-term loan where your monthly payments will be reduced. You’ll have to consider your individual situation to see which option is best for you.
Financial Advice is Too Expensive
Professional financial advice can certainly be a financial setback, but there are ways you can seek advice without spending too much money. In fact, you could actually get some advice for free by contacting an organisation such as Debt Advice Foundation, StepChange Debt Charity, or the Money Advice Service.
Needless to say, there are many more myths associated with personal loans than just those listed above, but hopefully, this has debunked some of the most common ones and alleviated some of your fears. Above, we’ve talked mainly about personal loans, but there are plenty of misconceptions about business loans, too. In addition, student loans are something that’s always been misunderstood, but there are many resources online to provide you with information.
If you are considering taking out a personal loan, we can’t stress enough how important it is that you make sure you will have enough money to make the repayments every month. Needless to say, missing payments will result in negative consequences that are most certainly best avoided. However, if you’re responsible with your finances, loans can provide you with a cash injection just when you need it the most. It’s also a good idea to compare a range of loan providers before you make your decision if you want to get the best deal.