6 Personal Loan Myths Dispelled

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

personal loan apr
Logo

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

Consumers are increasingly seeking out personal loans as a low-cost way to cover unexpected expenses. In fact, according to TransUnion, total personal loan balances in the U.S. are expected to reach all-time highs of $156.3 billion by the end of 2019.

However, you may have come across several myths that could be obscuring your understanding of this financial product and its uses. Here’s what to consider.

6 things that aren’t true about personal loans

The myths surrounding personal loans can range from interest rates to qualifications and everything in between.

All banks offer the same personal loan product

Not all personal loans are the same. You could find two personal loans — each with the same term length and borrowing limits — but get different interest rates when you apply. That’s why getting preapproved is an important step in researching lenders; doing so could give you a glimpse into the terms you may qualify for.

You should also consider lenders’ fee structures. For example, the personal loan with the lowest interest rate isn’t necessarily your cheapest option if it comes with a high origination fee.

Personal loans always carry low interest rates

Personal loans can provide lower rates than many credit cards, but that doesn’t mean the rates are exceptionally low. At least with unsecured personal loans, which aren’t backed by any collateral assets, lenders see them as a high-risk venture and may charge interest rates that range from 5% to 36%. That’s a wide margin.

Your rates may vary depending on your credit score, but lenders generally prefer borrowers seeking an unsecured loan to have a score that is higher than average.

You need a high credit score to qualify

A high credit score isn’t necessarily required to be eligible for a personal loan.

“While we recommend having a 660 credit score, there are personal loans available that don’t require one quite as high,” said Andy Misek, a digital marketing specialist at the Chicago, Ill.-based Finance Guru. “It will have a higher interest rate attached but you can still get the loan.”

Of course, if you want to qualify for some of the lowest rates, finding ways to improve your credit score can’t hurt. If you’re strapped for time, though, you may need to consider how to get a personal loan with bad credit.

You need to borrow the full amount offered to you

Don’t be mistaken: You don’t have to borrow the full amount of money offered to you by a lender. And in general, you shouldn’t borrow the maximum amount simply because it may feel like you’re making life easier for yourself in the short term. Doing so can be a bad move, especially if you’re still in school, said Kris Alban, the San Diego-based executive vice-president of financial wellness company iGrad.

“It will feel like the opposite once you’re out in the real world,” Alban said. “The smarter strategy is to borrow the bare minimum for expenses and fund the rest by boosting your income.”

Consider borrowing the bare minimum you need. Why? For one thing, you want to avoid taking on unnecessary debt. After all, you’ll be paying interest on that debt each month. You also have to consider the fact that your financial situation can change. You may feel comfortable making payments when you first take out a personal loan, but a financial emergency, such as job loss, could quickly put you in a pinch.

Personal loans are a great option if you’re looking to refinance debt and repay it quickly

If you’re looking to repay your debts in less than a year, it might not make sense for you to refinance them with a personal loan. This is because personal loans typically charge an origination fee of 1% to 5% percent of the loan amount, which you should take into consideration when calculating your overall interest savings, said Joseph Toms, president and chief investment officer at the San Mateo, Calif.-based Freedom Plus.

“However, if you know it will take you longer than a year, significant savings are possible with a personal loan, even if you factor in the origination fees,” he said.

Personal loans are your best option for managing debt

Someone carrying a significant debt of $7,500 or more, who does not earn enough income to make minimum payments, would have a difficult time qualifying for a personal loan. “They should look into other help, such as debt negotiation (settlement) or credit counseling,” Misek said.

Dealing with debt settlement companies, who negotiate with your creditors to reduce the amount you owe them, can be a risky endeavor; another option is to try negotiating with them yourself. A non-profit credit counseling agency such as American Consumer Credit Counseling can also help you put together a workable debt management plan as well as a budget you can live on.

Still looking for a personal loan? Here’s what to consider

Here’s some advice on how to get a personal loan, according to Toms.

Ask for details on the lender’s terms, rates, fees and options. Different loan options will offer different terms and fees. Some lenders offer discounts when there’s a co-applicant with excellent credit scores, low debt and good income, or if the applicant has a certain level of retirement savings. There could also be a discount offered if you’re using the loan to pay off higher-interest credit card debt will arrange for the lender to make those payments directly.

Ask about the lender’s late fees and whether they offer a grace period. Find out the fees for unsuccessful payments, personal check processing and other miscellaneous charges.

Understand that applying for a personal loan will involve a credit check. Personal lenders want to see a history of paying debts on time and gain confidence that you have the income to repay what you borrow. Although there is no perfect credit profile for consumers seeking a personal loan, and many lenders will consider those with poor credit scores, interest rates may vary greatly.

If your FICO Score is below 640, lenders may provide a very high interest rate to you. “And that may not help you get out of debt,” Toms said. “In fact, it may cause you to fall further behind.”

Know that some lenders may require a minimum number of years of credit history. A certain minimum threshold of income also is a common requirement.

Be ready to show that you can repay the loan according to the payment schedule. Different lenders may have varying thresholds for the debt-to-income ratio they would like to see. “You must be making at least minimum payments on current debt and show you have the financial capability to make the personal loan payments,” Toms said.

Interested in a personal loan?

LendingTree allows you to compare rates from multiple lenders by filling out one easy form. Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

RATES (APR)loan amount
5.99% – 17.88%1 $5,000 to $100,000
5.69% – 35.99% $1,000 to $50,000
6.98% – 35.89%* $1,000 to $50,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $35,000
5.99% – 29.99%4 $7,500 to $40,000
compare rates on Lendingtree now
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 17.88% APR (with AutoPay). Variable rates from 6.49% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of November 4, 2019 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.49% APR assumes current 1-month LIBOR rate of 1.81% plus 3.08% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
    See Consumer Licenses.
  3. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  4. If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.
  5. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
2 Includes AutoPay discount. Important Disclosures for Opploans.

Opploans Disclosures

Direct Deposit required for payroll.

Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.

  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
  2. NV Residents: The use of high-interest loans services should be used for short-term financial needs only and not as a long-term financial solution. Customers with credit difficulties should seek credit counseling before entering into any loan transaction.

  3. OppLoans performs no credit checks through the three major credit bureaus Experian, Equifax, or TransUnion. Applicants’ credit scores are provided by Clarity Services, Inc., a credit reporting agency.

  4. Based on customer service ratings on Google and Facebook. Testimonials reflect the individual’s opinion and may not be illustrative of all individual experiences with OppLoans. Check loan reviews.

  5.  

    Rates and terms vary by state.

3 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
4 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 5.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 5.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available.
* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Personal loans made through Upgrade feature APRs of 6.98%-35.89%. All personal loans have a 1.5% to 6% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by WebBank, Member FDIC.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

Published in

You're on your way...

You are being redirected to LendingTree.com where you’ll be able to fill out an online form. Based on your creditworthiness, you may be matched with up to five different personal loan lenders in our partner network.