Adding a debt component to your financial portfolio is a considerable step.
You will hear enough advice on matters relating to loans and why you should do certain things to pick an option or avoid another one altogether.
Clubbed together, these pieces of advice can cloud your judgement about loans and form different myths. Now, while it does not hurt to be careful and cautious, you really need to get over at least a few of the myths about getting certain loans.
Let us start this journey by busting some financial myths around loans. This will give you clarity over the aspects which really matter while getting a loan.
8 financial myths about loans busted!
1. Personal loans carry a high interest.
This one is among the most common myths associated with a personal loan. The common belief about a personal loan is that it carries a high charge of the interest rate. This myth’s roots stem from the fact that a personal loan is a type of unsecured loan.
For this reason, the rates of interest charged on such unsecured loans are higher in comparison to a secured loan. However, this does not mean that a common man should not avail of the loan to meet their financial needs.
The rates of such loan may also vary depending on your financial profile, credit history and repayment history. It is possible that you may be able to negotiate for a lower rate of interest with the bank, depending on the above factors.
2. A personal loan is given only by banks.
If you think that the only door through which you can get yourself a personal loan is a bank, then you may be mistaken. In the UK, you have the option to get a personal loan from high street banks, post offices, building societies, online banks and more.
Depending on the source through which you are taking a personal loan, you may be able to look for options with cheaper rates of interest as well. There is no need to limit your search to a traditional banking institution if you want to avail a personal loan.
3. Once you find a good rate of interest, you are sorted once and for all!
Unfortunately, this is not true. At any point in time, you may be able to find a reasonable rate of interest on your loans. This does not mean that you will not have to worry about it at any time in the future again.
For a lender, it is quite easy to bring changes in the rates of interest. A loan rate which seems to be competitive today may no longer remain so tomorrow. This is why it is essential to take a look at your loan aspects once a year.
4. You cannot qualify for a loan if you have a poor credit history.
It is not untrue that a lender checks your credit history to deduce your financial history.
Even with a poor credit history, it does not mean that you will not qualify for any loan. You can still look for various loan providers such as 1 plus 1 loan, Oplo homeowners unsecured loans, Everyday personal loans and more.
These are only a few loan providers’ options that can help you out if your credit score is not up to the mark. For the time being, you can take help from them while you work to build your credit score for the future.
5. Self-employed people end up paying higher rates of interest on loans.
This may be the case only when you are unable to produce the relevant paperwork. As long as your financial records and tax statements are in complete order, you can produce them to show your lenders how you are financially standing.
With the right order of paperwork, you will have no problem in availing of a loan from a lender at much the same rate as any other individual or a regular employee.
6. You do not get a prepayment option with a personal loan.
Due to the shorter tenure of a personal loan, people often come to believe that they do not have the option to prepay the due amount of loan. This is entirely untrue.
If you have borrowed from a lender in the name of a personal loan, you have the option to prepay the due amount, as and when it is convenient for you.
However, there may be a specific lock-in period on the loan amount, which will be intimated to you at the time of taking the loan. Once this lock-in period is complete, you are free to repay the amount of loan if it is convenient for you. Only when you repay the loan amount during the lock-in period will you incur some charges.
7. Taking a student loan will affect your credit score badly.
This is entirely untrue! Taking a student loan does not show up on a credit report, let alone affect it in any way. The only way a lender may know if you have a student loan is if they ask you for it on their application. There is no reason why you should hesitate to take a student loan, simply out of fear of this matter.
8. If you have a student loan on your head, you will find it difficult to get a mortgage loan.
It may be wrong to say that you cannot get a mortgage loan if you have a student loan on your head. While the latter does not impact your credit score, few notches on your mortgage application may show the effect of the same.
This happens mainly because the banks will consider your existing liability to pay off the student loan, which might affect your ability to pay for your mortgage.
Getting a loan may be a necessity for you at some point in time. It is best to stay informed with facts instead of feeling riddled with myths. You can get a copy of your credit report to check your credit score’s status, which will help you assess your financial standing and negotiate better terms while taking a loan. Even if you are not at a place to get the best rates of interest, it does not mean that you are not eligible to get a loan at all!