Personal Loan Myths Debunked

Personal Loans Always Have a High Interest Rate

It definitely is a myth to assume that personal loans always have a higher interest rate than other options. Relatively speaking personal loans can actually outperform credit card rates in terms of APR and other borrowing products as well. However, due to the fact that most personal loans are “unsecured” and therefore much riskier for a lender to issue, the rates will typically be much higher than that of a “secured” loan. This doesn’t mean that the rates will necessarily be “bad”, however with riskier borrowing options you are more likely to pay high interest.

How Do Rates Compare with Different Lenders?

Rates vary for each individual consumer, so some lenders may provide more better rates than others. As a general rule of thumb, you are more likely to get a favorable interest rate from your personal bank or a lender that you have an established relationship with. Local banks are usually the best way to go and mom and pap credit unions are known for helping consumers with favorable borrowing options. They are more known to give an ear to the little guy.

Are They Difficult to Qualify For?

It is much more difficult to qualify for a personal loan as opposed to an auto loan or any other collateralized loan products. The reason being is that personal loans are usually unsecured, so if you cannot maintain repayment the lender has no property to retrieve in the case of default. Given this fact, personal loans can sometimes be on the more difficult side to qualify for (in comparison to a credit card), this is especially true if you have a high utilization rate.

Can Applying for Too Many Personal Loans Ruin Your Credit

Yes, applying for multiple lines of credit—especially within a short-term frame—can definitely have a negative impact on your credit worthiness. Even with soft credit checks, this can have a negative impact on your credit if you are simply pulling your credit too many times within a short time period. However, this can easily be counteracted by acquiring more diverse lines of credit and successfully paying off debts in a timely manner and fashion. Good and timely payment history displays to lenders that you are financially responsible and are perceived to be a lower risk in the future.

What’s the Best Bet?

The best bet is typically to go with a local option and meet in person with a personal banker. Smaller banks and credit unions are likely to get better options in terms of lending options. Otherwise you as a consumer can go the convenient route and get an offer wall from P2P personal loan lenders. You can try www.bankrate.com which will provide you varying options and offers all from their home page. Feel free to compare other options and websites as well but this just at the very least provide you with a good baseline to work off of. Once you’ve weighed your options you can go ahead and pull the trigger on the option with the best terms. That's if you are certain you should apply for a personal loan in the first place.