Personal loans are a godsend for people who need to finance a big expense like a home renovation or consolidating debt. While it is a useful tool, personal loans are often misunderstood. Suppose you’re a first-time borrower applying for a personal loan in Birmingham, AL. You probably have a lot of doubts that may prevent you from reaping the benefits of your loan. To avoid all that, we took the liberty of debunking some of the most common personal loan myths for you.
Myth #1: Low credit scores mean loan rejection
While credit scores are an important criterion for loan eligibility for most lenders, it doesn’t always mean that your loan application will end up being rejected. There are still other factors that take precedence over a low credit score. Financial institutions also factor in aspects such as a borrower’s income and repayment capacity.
By looking at all those factors, including your credit score, it’s still very much possible to have your application approved depending on the lender. However, you should remember that borrowers with low credit scores usually get higher interest rates as a way to offset the risks associated with your application.
Myth #2: Applying for multiple loans increases your chances of approval
Many people mistakenly believe that applying for loans with multiple lenders at the same time will increase their chances of getting approval. It may sound like a good idea at first, but it actually affects your credit score negatively. In practice, lenders will pull your credit every time you apply for a loan, and having too many inquiries on your credit report at one time can hurt your credit score.
Instead of sending multiple applications simultaneously, try to make a shortlist of lenders that best fit your needs and try borrowing from one lender. If you happen to get rejected, then that’s the time you move on and find the next lender on your list.
Myth #3: You can’t apply for a personal loan if you already have an existing loan
This is a common misconception that many borrowers believe to this day. In reality, financial institutions don’t really pay attention to how many loans you have, as long as you have the capacity to pay for it. So when the lender looks at your repayment capacity and your current income and concludes that you can still pay for the loan despite all other expenses, then you’re very much eligible for a second loan.
Myth #4: Only salaried individuals can apply for personal loans
For salaried individuals, it’s easier to have their loan applications accepted because they have a steady flow of income. However, that doesn’t mean that self-employed individuals are not eligible to take out a loan. For example, if you’re self-employed and applying for a small personal loan in Birmingham, AL, the lender will base their approval on your credit history. However, the amount that is sanctioned might vary depending on the lender.
Personal loans are a great way to consolidate debt at lower interest rates or manage your expenses when you happen to have a financial shortfall. Therefore, it’s in your best interest as a borrower to figure out what are simply myths in personal loan applications so you can make better decisions when taking out a loan.
At Mid-Town Finance, we understand the need to get funds as fast as possible, depending on your situation. We make it a point to offer same-day loans with clear, straightforward repayment plans. If you’re put in a position where you need to take out a small personal loan in Birmingham, AL, Mid-Town Finance is here to help. Contact us today to apply for a loan.