Personal Loans Myths to Know (and Ignore)

Like with just about everything, sometimes there’s some bad info out there, and with personal loans it’s no different. You might have heard what sounded like personal loan tips, advice or insight, and if the one sharing the info is convincing it’s that much more difficult to separate fact from fiction. 

Only Banks Offer Personal Loans

This is simply not true. In fact, many online lenders compete with the terms and rates that banks have to offer. Also, it is not uncommon to find that some online solutions can provide better terms and even beat the banks on rates. How is this possible? The online lenders have much less overhead and are able to pass the savings along to the consumer. 

Personal Loans Are Only for Personal Reasons

Just because they call it a personal loan, doesn’t mean they are only reserved for personal reasons. When you borrow an unsecured personal loan, they lender might ask what you intend to use it for, but you are mostly free to use it as you prefer. While some of the more common reasons would include things like taking care of credit card debt or some form of debt consolidation, they’re also used for things like home improvements, medical bills, travel, weddings and much more. 

RELATED: 5 Things to Know When Looking for Personal Loans

Personal Loans Require Collateral

Actually, if you were applying for an unsecured personal loan then there is no need for collateral. Sometimes there is confusion between secure and unsecured loans. A secured loan requires collateral, usually an asset like a car or home. Should you fail to make payments, the lender can take the car or home. Since these are lower risk loans for the lender, the secured loan also has lowered interest rates. But just because the rates are lower doesn’t mean it’s the better option. Also, this is only an option if you have built enough equity to qualify for the option

Personal Loans Hurt Your Credit

This only applies if you were to do something such as make late payments or one of a dozen other things that might impact your credit score. Truth be told, if you make your payments on time, you’re more than likely to be fine. 

RELATED: What Credit Score Do You Need For a Personal Loan 

Personal Loans Take Forever to Process

This is more likely if you’re dealing with a bank, but when it comes to online lenders, you will often find that you can get faster processing, and are more likely to be approved. With many online lenders from application to funds being deposited can occur in as little as 1-2 days. 

RELATED: Fast Ways to Improve Your Credit Score You Probably Don’t Know 

Personal Loans Only Come With High Interest Rates

Another ridiculous myth that couldn’t be further from the truth, as anyone can attest that has looked online recently. There are lots of online personal loan options that directly compete with the bank and even beat them for terms and rates. Some tend to think banks and credit unions are their only option but more have been turning to online lenders in recent years.

Getting Approved for a Personal Loan is Difficult

In most cases, getting approved for personal loans is not all that difficult unless you’re dealing with poor credit and have trouble locating a lender that will consider your application. If this is the case, then it would be important to improve your credit score so that you might have a chance at getting better terms, rates, and being approved in future. Being able to get a personal loan can have benefits and provide financial freedom in a number of ways.

Applying for Personal Loans is Difficult

If you’re applying for personal loans online, it doesn’t get much easier. Unlike a bank, where you need to setup an appointment, wait a few days, drive over to complete an application, then wait a week or more for them to get back to you. By the time all that happens you might have already gone through the process 3 times with an online lender. 

When Applying for Personal Loans, Get the Max Available

This is just bad advice and we’re not sure why anyone might follow this. The key to borrowing responsibly and being smart about managing your finances is to only borrow what you can afford, so that you won’t have any foreseeable trouble making your payments or credit issues down the road.

Also see: Credit Card Debt and Myths

You can also find additional myths for newcomers about building your credit score with lots of insights and advice for those new to Canada.