The startups are facing a lot of problems in understanding the complexity of personal loans. The situation is getting difficult for startups and banks, as well. Therefore, Smart Loan will explain about the misconceptions that people have about loans in this article. Thus, you’d be able to make an informed decision if you are facing financial problems. So, let’s take a look at the misconceptions the consumers have about loans.
Misconception 1: No Loan for Consumers with poor credit history
Many people avoid applying for loans when they have a poor credit history believing that their application won’t be approved. There is no doubt that the applicants need to have a strong credit score to get their loan application approved. But some lending institutions have different eligibility requirements. The reason why lending institutions reject the application of borrowers who have poor credit rating is that they aren’t sure about whether they will repay the loan or not.
And based on the past experiences, the lending institutions have now designed tough rules and regulations for the borrowers. Therefore, many borrowers cannot get their application approved because of the poor credit rating. But some banks might agree upon providing you with a loan even if you have a poor credit rating. However, they will charge a higher interest rate for providing this service.
Second Misconception: The interest rates are the same for all lenders
The interest rates may vary based on the terms and conditions of the lending institution you’ve selected. The lending institutions consider several factors when determining the interest rate for the borrower. The personal situation of the borrower is carefully examined. The lenders will take a look at your debt balance, credit score, and your income to decide the interest rate.
And if you’re thinking of going for the loan with the lowest interest rates, you might be a mistake because these loans have their consequences. It’s your responsibility to figure out all the important factors of a loan. Sometimes, the borrower will be asked to join the insurance program to get the loan. And it will increase your costs in the long run. However, the banks will earn some profit from these payments.
Third Misconception: Longer Tenure Comes with Higher interest rates
Usually, the interest rates increase when you increase the term of your loan. However, you can decrease your rate to get interest rates according to your requirements. Moreover, things will become easier if the loan doesn’t have any prepayment penalties. You need to make the larger monthly payments if you want to decrease the interest rates in the long run. Usually, the students can take advantage of this facility as it’s associated with the college or student loans.
The lenders provide you with the facility to make the full payment when you’ve become financially stable. Thus, you’d be able to get rid of the stress as soon as you want.
The reason why you need to understand these misconceptions is that they can be a hurdle for the decision-making process. You’d now be able to get a car loan or home loan without having to be worried about these misconceptions. Make sure that you only borrow the amount that you need.