Borrowing money in the form of a bank loan has been surrounded by stigma for years. Many people think it means paying high interest rates and falling into a cycle of ever-deepening debt. That is, if you can get one at all. However, these are long-held myths that simply aren’t true.
Whether considering a personal loan, a credit card, or dealer financing for a big purchase, it’s easy to let misconceptions hold you back. To help you boost your financial knowledge and freedom, this article debunks some of the most common myths about taking out loans.
1. Loans Are Only for Emergencies
It’s a common belief that loans should only be used in cases of emergency—like medical expenses, car repairs, or unexpected job loss. While it’s true that loans can help in emergencies, they’re not exclusively for those “uh-oh” moments. Indeed, borrowing money can also be a smart way to fund planned expenses, such as buying a home, starting a business, or paying for higher education.
In fact, many people borrow money to fund their long-term goals and dreams. For example, a loan can provide the capital you need to get things off the ground if you want to start a small business or expand an existing one; some business owners might also use the funding to acquire new equipment to improve production times. Similarly, students may also take out loans to pay for school, with the understanding that their degree will lead to better job opportunities later. So, don’t just think of loans as something for emergencies—borrowing can also be a smart way to invest in your future.
2. Borrowing Money Means Paying Sky-High Interest Rates
One of the most common reasons people avoid getting loans is the assumption that they always come with sky-high interest rates. While some loans may indeed carry higher interest rates, not all lenders have the same terms. Indeed, many financial institutions offer competitive rates, especially for those who are well-prepared and know where to look. For example, personal loans can have monthly interest rates as low as 0.77%, depending on the lender and the type of loan.
However, don’t jump on the first offer. Check out different loan options and make sure you really understand what you’re getting into before you commit. You should also know that some loans have fixed interest rates, meaning your rate stays the same, so it’s easier to plan and stick to your budget. Plus, you can often save money by paying off the loan early.
3. You Need a Perfect Credit History to Borrow Money
Another common misconception about borrowing money is that you need excellent credit to get approved for a loan. While it’s true that having a good credit score heightens your chances of securing a loan with great terms, it’s not the only factor that gets considered. In fact, many lenders today are willing to work with people who have less-than-perfect credit or even those with no credit history at all.
Remember that banks and other lenders evaluate a number of factors when reviewing your application, including your income, employment history, and overall financial health. Some lenders also offer specialized products designed for people with lower credit scores, focusing on your ability to pay rather than just relying on your credit score. So, even if you don’t have perfect credit, you may still be eligible for a loan.
There are also a number of strategies you can use to get approved for a loan, even if your credit score isn’t ideal. For example, if you are married, your spouse can sign on as your co-maker. You may also add documentation of your additional income streams that don’t traditionally provide printed documents (such as a stable freelancing gig).
In addition, with the rise of digital banking and other modern practices, some lenders now don’t require documents to apply. A good example is digital bank Maya, which allows registered users to apply for Maya Easy Credit and Maya Personal Loan without additional documentation.
4. You Need Collateral to Borrow Money
Many people assume that borrowing money from a bank, especially if it’s for a huge amount, means putting up something valuable—like your home or car—as collateral. However, this is only the case with secured loans. Nowadays, there are plenty of personal loans and other credit products that are unsecured, which means you don’t have to risk your property to borrow money.
That being said, be ready to pay a bit more in interest with an unsecured loan than a secured one. That’s because the lender takes on more risk, with no asset to fall back on in case you default on your payments. Additionally, while you usually don’t need collateral for personal loans, some lenders might still ask for extra security, like a co-signer or a guarantee.
Lastly, many unsecured loans also come with flexible repayment options and lower borrowing limits, so they’re a great choice if you need a smaller amount of cash for matters like home improvements or covering unexpected expenses.
5. Borrowing Money Is Too Complicated
Many people think getting a loan takes forever, requiring tons of paperwork and endless trips to the bank. But that’s not really the case anymore in many instances. In particular, digital banks and online platforms have made the whole thing much easier and quicker.
Anyone can apply for a loan today without ever setting foot in a bank or filling out stacks of paperwork. Many lenders offer online applications that are fast and easy to complete, only needing basic personal and financial information. Once you apply, you typically get an outcome within hours or a couple of days, depending on the lender. For digital lenders like Maya, you can even receive instant feedback about your application.
Additionally, many digital platforms and financial institutions have mobile apps for managing your loan. You can track and transact everything you need from your smartphone, making the entire process much more convenient.
Empowering Your Financial Decisions
Knowing the facts about borrowing money can help you make smart financial decisions. Whether considering a personal loan for an emergency, augmenting cash flow, or planning for a big-ticket purchase, borrowing money can be a great choice when used wisely.
When done responsibly, getting a loan isn’t something to fear—it’s an effective way to achieve your financial goals and build a brighter future.