Dealing with money worries can be a dark and lonely experience and there’s no denying that the stresses and strains can take a toll on our everyday lives. The numbers show that more than 18 million UK adults fret about their finances on a daily basis, while a recent study from the Money Advice Service found that 55% of people had experienced mental health problems due to concerns over their financial situation.
These statistics are irrefutable evidence of the importance of having our finances in order, and a huge part of creating a healthy picture for ourselves is being fully educated about our options. Having a greater understanding can help us to make better decisions, whether we’re seeking external funding, looking to enhance our credit score or aiming to improve our personal budgeting skills.
For example, if borrowed responsibly and for the right reasons, personal loans can be a legitimate method for alleviating financial issues. They prove a popular route for many, with £14.68 billion in unsecured loans lent in the UK during February 2018.
However, there are a few misconceptions which may be discouraging people from exploring them as a viable option. Here, we’ve attempted to bust three of the common myths surrounding personal lending.
“My credit rating will suffer”
Applying for a personal loan does not necessarily mean your credit score will be negatively impacted. Although you have essentially acquired a new debt, if you demonstrate the ability to pay it back in full and on time, your credit rating will actually improve. However, it’s important to note that applying for multiple personal loans in a short space of time is likely to have a detrimental effect on your credit score, so it’s certainly worthwhile doing your research before making your application.
“I’ll get into spiralling debt”
Thanks to the financial industry’s stringent regulations, if your prospective lender believes you may be unable to pay back your loan, you are unlikely to be approved in the first place. If you are given the green light, it’s because you are deemed to be capable of paying back your amount in a timely fashion, which means you should avoid entering into worsening debt.
“Personal loans always come with high interest rates”
Another misconception surrounds the interest rates attached to personal loans. Regulations have now been put in place to limit the amount of interest any person will pay over a daily or yearly basis. These restrictions have helped to cap the sometimes extortionate rates that some lenders charge, increasing the borrower’s ability to pay back the money owed in full and on time.