The loans’ marketplace is full of myths. Lots of people you talk to about borrowing will have strong opinions, many of which are completely false and based on long-held myths. Often these myths work in favour of the big banks that had a monopoly on lending for a long time – until online lenders and challenger banks started to offer easy-to-get personal loans to consumers. We’re here to put these myths to bed once and for all.
Common loan myths debunked
Myth 1. You have to have a perfect credit record to get a personal loan
This might have been the case a couple of decades ago, but not any more. The rise of short-term loans online has meant that there are now plenty of options out there for people who may not have the best credit record. In fact, if you have a good employment record, have a steady income and have avoided severe credit problems, such as CCJs, in the past, you will find it easier than you think to get loan offers.
This is not to say that you shouldn’t display caution when borrowing with a low credit rating. You might not be offered a very good rate if your credit history isn’t up to scratch. You may also find that the value of the loans you are offered is lower than you would have liked or that you are asked to repay more quickly than is ideal.
Myth 2. You can only borrow money for certain reasons
Although most lenders will ask you what you are borrowing money for, you can, within reason, spend the money you borrow on anything you like. No-one is actually going to check what you spend the money on, but there are some uses for loans that are certainly not sensible options.
- Using loans to pay bills
- Using loans to habitually pay off other loans
- Using expensive loans to pay for luxuring, such as holidays
- Using loans to pay for your everyday expenses
Using loans for these purposes can lead to unmanageable debt. Borrowing costs money and you should only borrow when you have no alternative and cannot meet costs any other way. If you are struggling with the day to day cost of living, borrowing will just make matters worse.
Myth 3. You should only borrow money from a big name bank
Until relatively recently, many people believed this myth, as banks always offered loans to valued customers. These days they are still offering these loans and actively market their loan rates as being competitive. However, there are many other options out there for savvy consumers who have an open mind.
For example, online instalment loans, which can provide you with short-term financing from the day you apply. Peer-to-peer lending, meanwhile, matches you with willing members of the public and institutions who want to join forces with others and lend to borrowers as an investment.
The key is to check your eligibility by keeping on top of your own credit score, through a free service, such as the one offered by Experian. Then check the options using comparison sites for other online research so that you know what’s out there before applying.
Myth 4. Online loans are not to be trusted
This is another myth that has been very convenient for the high street banks! Online loans are absolutely trustworthy, providing you check that your provider is registered and authorised by the Financial Conduct Authority (FCA), which regulates the lending industry in the UK. You will see this information clearly on a lender’s website.
Online lenders should also be transparent and upfront about their charges, fees, and interest rates, they should display this information clearly and if you can’t find the information you need, then consider a different lender instead!
Myth 5. Overdrafts are cheaper than loans
Not always! Although overdrafts can be a cheap way to borrow, they can be more expensive than even short-term loans if used inappropriately. With an overdraft, you often pay interest on the amount you have actually borrowed each day you are overdrawn.
If you run up a large overdraft and never actually pay any of it off, it can become extremely expensive. However, if you borrow a little each month and pay it off regularly, you will probably be better off using an overdraft than short-term loans.
Now we have busted a few myths, you will see that there are a whole lot of options out therefore borrowers who do their research. It pays to be well-informed before starting the application process for loans, so don’t skimp on the homework. If you keep an open mind about borrowing, and in particular, borrowing online, you should be able to find a good deal that works for you!