If you ask me, you should stay off debt as much as possible and, if you have any debt (mortgage, student loans, credit cards, personal loans etc.) work hard to become debt free once again. Otherwise chances are you’ll always be broke.
The problem with life is that it doesn’t always work like we planned, so unexpected events can ruin all your great financial plans. This is where a personal loan can come to assist you.
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Before we delve into this type of loan: a personal warning – don’t get into debt easily. Try and curb your spending, start saving money, so that you can solve your money problems.
It doesn’t make sense to get into debt over and over again, at one point you’ll have to just make some drastic changes to your lifestyle and start paying off all your debt.
Now that we settled, let’s discuss more about personal loans and 5 most common personal loan myths.
Personal loans are the most expensive type of loan
Interest rates on personal loans are high, if you compare them to a mortgage for instance.
There are options to lower your annual interest rate at about 11-12%, compared to credit cards, for instance, which have an interest rate ranging between 18% and 48% per year.
If you want to get a good deal, make sure you have a good credit score and shop around.
Personal loans can be used to buy gadgets and expensive cars
Credit cards are more expensive, when comparing interest rates, so you might be tempted to fund a lifestyle you cannot afford, by taking personal loans.
Most lenders don’t ask too many questions about what you are going to use the money for, but don’t just squander it, you’ll have to pay off your debt eventually.
These are just liabilities that add on.
Use the money wise.
You can pay off your credit card debt for instance, if your interest rate is already big and it’s way too costly to keep that type of debt.
Invest in a small business. Pay off your medical bills. Pay for a certification that will bring you a bigger salary or better clients.
Use personal loans to solve a financial emergency, rather than doing shopping.
If your credit rating is bad, it’s impossible to get a loan
Credit rating is the most important ‘number’ in your life, when it comes to money and a bad credit rating will affect you in all kinds of ways: from not getting a great job, to huge interest rates and bad deals overall.
You can be denied a personal loan, if your credit report is really stinky, but chances are you can still get a loan, if your rating isn’t that bad.
Don’t forget though, a bad credit rating means worse terms, though. You’ll not be able to get too much money and your interest rate will be higher, than it would have been with a stellar credit rating.
If you pay off your loans as agreed and need money again in the future, chances are you’ll get better terms.
You have to be debt free to start saving for retirement
Don’t let your personal loan debt follow you to the grave, make sure you pay it off as soon as possible.
Since most people have a mortgage at least for 10-30 years, postponing your retirement savings is really a bad idea.
As soon as you can, start a pension fund and invest in it.
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Make retirement saving a priority all throughout your adulthood, the sooner you start saving, the bigger your nest egg will be.
All personal loans have the same interest rate
As discussed before, personal loans aren’t the most costly type of debt. It gets better: there are different interest rates provided by the licensed money lenders.
Your loan terms vary based on your credit history, but also based on the financial institution granting you the loan.
This is why you need to do a lot of shopping around to get the best possible deal.