Need some extra cash? Personal loans may be your best bet. This type of loan can help fund your expenses and consolidate debt when needed. However, getting one can be daunting, especially when several misconceptions surround personal loans.
While any financial decision involves a degree of apprehension, it can be made with confidence if you know how to be a responsible and knowledgeable borrower.
A Quick Rundown on Personal Loans
A personal loan is any amount that you can borrow for various reasons. You can apply for this loan to restructure debt, get a degree, or organize your dream wedding. Personal loans, unlike credit cards, can provide you with a single cash flow. You must repay the principal amount over a period, usually in regular installments with interest.
Personal loans may be one of two categories. It can be secured (also known as collateral loan). Here, you must put up security to borrow money. It can also be unsecured, where you do not need to put up any collateral. Personal loans have different terms when it comes to interest rates, fees, and payback durations. They would all depend on your agreement with your loan provider.
With that, this article will debunk some myths about personal loans to subside your apprehensions about them and help you better understand how they can help your finances.
7 Common Myths About Personal Loans You Shouldn’t Believe
1. The personal loan application process is complicated.
People assume that applying for personal loans is a lengthy process and requires hefty documentation. However, getting approved for an online loan in the Philippines can be an easier procedure than qualifying for an auto loan or a house loan. It can be as simple as filling out an online form and waiting for the approval confirmation, which may take a few minutes or hours.
When applying for a personal loan, the golden rule is to do your homework. Make sure you understand your loan provider’s qualifying criteria and conditions. Later on, you’ll be less stressed once you submit your application.
2. You can only get personal loans from banks.
Only banks provide personal loans. This idea is a common misconception. While they are among the financial organizations that offer individual loans, banks are not the only source. Several non-banking financial firms provide individual loans, including crowdfunding platforms and digital lenders. They often approve loan applications at lending rates comparable to banks and leave room for your loan’s customization.
Like personal loans, auto loans are also provided by various lending institutions and finance companies. The difference? An auto loan is backed by the vehicle you want to purchase. This means the vehicle you’re planning to purchase serves as a pawn to the collateral loan.
3. A low credit score guarantees rejection.
A poor credit score may influence the result of your loan application, but it does not ensure a denial. While it is a significant approval criterion, it is not restrictive. Other parameters considered by lenders include age, income, document validity, a fixed obligation to income ratio, and more.
Ultimately, credit standards and qualifying requirements may vary per lender, but they all look at your capacity to repay a loan. Remember, though, that there are inevitable trade-offs to consider. If you have poor credit, the amount you can borrow and your interest rate will be affected.
Comparing interest rates from several private loan providers is critical to get the most reasonable option.
4. High-interest rates.
Since unsecured personal loans do not need collateral, it is anticipated that they would have high-interest rates. In reality, the interest rate varies per lender and is often determined by your credit profile. The Effective Interest Rates (EIF) typically range from 10% to 30% a year, making them far more affordable than credit cards. Furthermore, no collateral or asset blocking is necessary—making it a better offer.
Compared to personal loans, car loans typically have lower interest rates. The specific rate you’ll qualify for depends on your financial credentials. Asialink Finance offers interest rates for car refinancing and 2nd hand car financing for as low as 1.5%!
5. You’ll be tied to debt for a long time.
Even though you’ll be paying your loan monthly, don’t be alarmed by the terms. Make a budget and a payment plan for each month. If you know where to search, personal loans may come with flexible lending conditions. They are available for longer durations and more significant amounts. The loan durations span from six to 36 months, typically with a maximum loan amount of ₱2,000,000.
6. Only individuals with a fixed and regular income can apply for personal loans.
It is a prevailing fallacy that only salaried people are eligible for personal loans. Because their income is more or less guaranteed, getting a loan application approved is simpler for regular employees.
On the other hand, self-employed people may also apply for personal loans. The only difference is that the loan amount is approved depending on their credit history.
7. Personal loans do more bad than good.
At first glance, anyone with a traditional or conservative view can say that any loan is harmful. But that depends on how you use the loan. It can be considered good debt and investment when used for the right purpose.
Today, you can use a personal loan to put you through grad school, fund a new skill, or help you start a business. It can be an investment that would, later on, improve your financial capacity.
Secure Your Future
Personal loans are not as difficult to apply for as it seems. Contrary to widespread assumption, it does not always confine you to a tight position. Rather, it can be your solution in funding an investment or further improving yourself.
However, before signing on the dotted line, comparing your loan options is crucial. Your verdict ultimately boils down to your circumstances. For starters, check your credit score, income, and preferred tenure to pay off your loan. After considering these, you may realize that other loan offerings such as an auto loan may be the better option for you.