Taking out a loan can feel like a big decision, and for many borrowers, uncertainty stems from the myths surrounding personal loans. Misconceptions about loans can prevent people from making informed financial choices. So, let’s separate fact from fiction and set the record straight.
Reality: Your score may drop slightly in the short-run, but it shouldn’t plummet to zero.
Applying for a personal loan impacts your credit score in a similar way to applying for a credit card. The application triggers a hard inquiry, which may cause a small, temporary drop in your score.
If approved, your score could dip slightly further, as the new loan lowers the average age of your credit accounts.
The impact of a personal loan on your credit score depends on how you manage repayments. Paying it back on time and in full can help maintain your score, while missed payments can have a negative effect.
Reality: Loans aren’t just for emergencies - they can be a smart financial tool.
While loans can help in urgent situations, they are also commonly used for planned expenses. Borrowers take out loans for various reasons, including:
It’s all about using loans strategically to improve your financial situation, rather than as a last resort.
Reality: Loan options exist for people with a spectrum of credit scores, though rates vary.
A perfect credit score can get you the best rates, but it’s not the only path to loan approval. Many lenders offer loans to borrowers with fair or mid-prime credit scores. The important thing to remember is that the better your credit score, the better the interest rates and loan terms you’ll be offered. If your credit score isn’t ideal, you can still find options - but expect higher interest rates.
For example, here at The Money Platform, we're committed to financial inclusion. Our proprietary TMP Score looks beyond traditional credit checks, enabling us to provide fair and accessible loans to more borrowers -even those often overlooked by mainstream lenders.
Every time we help someone achieve greater financial flexibility, it's another step toward our mission: creating a fairer, more inclusive financial future for everyone.
Reality: Interest rates can change, and refinancing is an option.
Many loans come with fixed interest rates, meaning they stay the same throughout the loan term. However, some lenders offer variable rates, which can fluctuate over time. Additionally, if your credit score improves, you may have the opportunity to refinance your loan at a lower rate. Regularly reviewing your loan terms can help you identify opportunities to save money.
Reality: The loan process is faster and easier than ever.
Thanks to digital banking and online applications, you can now compare loans, submit applications, and even get approved in a matter of hours - sometimes the same day. Gone are the days of lengthy paperwork and waiting weeks for an approval decision. If you have the right documents ready and apply with a lender that suits your credit profile, the process can be quick and hassle-free.
Misinformation about loans can prevent people from making the best financial decisions. Understanding the realities of borrowing can help you use loans to your advantage, whether for consolidating debt, making a major purchase, or improving your credit profile. The key is to be informed, compare options, and borrow responsibly.
Feel free to explore the other articles across our Smart Money Management section and take your step to making more educated, financial decisions today!
Loans are subject to status and affordability. Over 20 years only.
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