Busted: 5 biggest myths about taking out a loan
Ever thought about taking out a loan but have been discouraged by what you’ve heard? There are countless myths around loans and credit cards, which is why we’re here to debunk the top ones so you can make an informed decision.
Taking out a loan can have a positive impact on your credit score and finances (if used responsibly) so it’s worth taking the time to understand how they work.
It’s a good time to borrow whenever interest rates go down, but this is not the only factor impacting the deal you get. The interest rate you’ll be offered by a lender depends on your own financial circumstances and your credit score. Generally, the better your finances appear to a lender, the more likely you are to get a good interest rate. This is due to the fact that a higher credit score signals to a lender that you are not a risky borrower. So it makes sense to get yourand before you apply for a loan.
This one’s a bit of a catch 22. When you apply for credit, a “hard enquiry” will be added to your credit report, which can have a negative impact on your credit score. Too many hard enquiries (or rejections) in a short space of time are likely to bring your score down, as they indicate to anyone who looks at your report that you could be overly reliant on credit.
On the other hand, managing your loan responsibly can do wonders for your credit score. Once you’ve been accepted for a loan and you make repayments in full and on time, you should see your score increase. This is because your loan repayments are recorded on your credit report and lenders will be able to see that you’re capable of handling debt, which will reflect well on your credit history.
Although you may see your score take an initial dip when you apply for a loan, paying it back responsibly should have the opposite effect. It’s definitely not a reason to avoid applying for a loan; in fact, it can be a great way to prove how financially responsible you are.
Don’t forget that you can check which loans you are eligible to apply for by logging into your. If you want to avoid any unnecessary blemishes on your credit report, about why a loan may be headed for the rejection pile.
There’s no such thing as a free lunch - lenders will always want something in return for lending you money, and personal loans can come with higher interest rates than other forms of borrowing. It’s best to shop around and compare a range of deals to find the one that suits your needs and budget. The better your credit score and financial health, the better the deal you’ll be offered on a loan.
Check your eligibility: See which loan offers you might be eligible for on your.
This one’s important: it’s never a good idea to fire out applications for loans at random in the hope that at least one lender will offer you credit. It’s not a numbers game, and this is likely to do more harm to your finances than good.
Each time you apply for credit - be that a loan, a credit card or something else - a “hard enquiry” will be added to your report. Too many of these in a short space of time is likely to bring your score down as you’ll appear desperate for credit. Not only this, but lenders will then be less likely to accept your application if they can see you’ve applied for lots of others as you won’t look like a stable borrower. The trick is to check how likely you are to get a loan with a “soft enquiry” so you won’t be going in blindly.
While a good credit score could be your ticket to a better deal on a loan, it’s not the end of the road if your score’s not as high as you’d like it to be. There are lending options out there for pretty much everyone. For example, bad credit loans are designed specifically for people with lower credit scores. The catch is that lenders tend to charge higher interest rates for these types of loans, which can make them an expensive way to borrow money. This is because if you have a poor credit score, a lender will view you as a high-risk borrower, so charging you more in interest covers their backs.
It goes without saying that, as with all forms of borrowing, make sure you can afford to keep up the repayments before you apply for the loan in the first place. Alternatively, if you’ve got time on your side, it’s definitely worth trying to improve your credit score before applying for a loan.
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