The top myths about borrowing money

The top myths about borrowing money (and how to stop your money concerns)

The act of borrowing capital for it to be paid back with interest pre-dates even the common usage of money as a currency. Over the years borrowing, and the forces that govern it, have changed, and evolved.

Today, the lending industry is growing with institutions of all types, from breakdown recovery providers, to supermarkets.

With so many options available within such a crowded marketplace, certain myths have begun to circulate, myths that can be damaging to the people taken in by them. In this piece, we are going to highlight what we believe to be the top few, extract the truth from them, and hopefully leave you in a better position to eliminate your money concerns.

So, let’s kick things off with a classic…

Myth 1: If borrowing money, take the most that is offered to you

You need £500 for some emergency repairs on your car. You do your homework and find the loan company that fits your needs, fill out the form, and minutes later get a message telling you you’re eligible for a £2,500 loan. Happy days, eh? Now, not only can you get the repairs done, but you can have those chrome alloys fitted that you’ve had your eye on. You might even just have enough left over for a big night out to celebrate.

Easy there tiger. As tempting as it can be to get a little over-excited when seeing more numbers than you expected, it doesn’t mean you should take them all. Remember, loans companies tell you what you can afford to borrow, not what you should.

The bigger the loan, the higher the repayments. With this in mind, when deciding that you need a loan to finance any aspect of your life, do some number-crunching, work out exactly what you can afford to borrow; and stick to that figure.

 Myth 2: Paying for everything yourself will ensure a good credit rating

Before approving a loan, lenders look at the borrowing history of a would-be customer. They need to ascertain how reliable they are when it comes to dealing with money, and how much of a risk a customer presents in terms of meeting repayments.

If no history can be found on a credit file because the individual in question pays for everything in cash, then it is difficult for a lender to determine whether it’s a risk worth taking.

Compared with using credit, or defaulting on repayments, using cash often presents as a superior option. However if you have only ever paid for everything outright and have no history of responsible credit use, then it will be make it harder to obtain credit should the situation arise.

Myth 3: A poor credit score can never be rebuilt

All a credit report really is, is a history of all your borrowing. A record of all credit opened in your name dating back no further than six years. Defaults, hard credit searches, and charges such as CCJs may all inflict damage on scores. Even if an account is closed, it isn’t wiped from your record, at least not for a long time.

But it’s not all bad news. It is possible to rebuild your rating by paying on time and showing yourself to be a good borrower.

Away from issues surrounding the pros and cons of saving, and of credit checks and paper over plastic, some of the most stubborn and prevalent myths surround independent loans companies. Up next are some of the most enduring…

Myth 4: Taking out another loan will just make my debt situation worse.

A lingering myth, and one which on the face of it looks obvious. Surely, if I’m struggling to meet multiple loan repayments, taking out another loan is nothing short of madness.

It’s a myth and allow us to explain why. By taking out a consolidation loan, all your existing debts are effectively paid off. This may mean no more letters from providers, no more trying to remember which days repayments are taken, and no more paying back multiple interest charges. The consolidation loan combines everything into one payment, taken on one day of the month, and at an interest rate that may be lower than any of those attached to the repayments you’ve been making.

And a little-known bonus is that if you manage to make your monthly payments and pay off the loan on time, it will actually end up improving your credit score. However, this may involve extending the lending terms of the loan increasing the total amount you may pay over time

Whatever you do though, don’t be tempted to seek loans from a secured loans provider, because we all know…

Myth 5: Secured loans providers insert hidden fees and conditions

There’s an entirely erroneous assumption that secured loans providers add fees and make changes to the original terms of loans after they have been approved. This is simply not true.

The most likely reason this myth persists, is that very few people bother to read every term and condition prior to taking out a loan. The reality is the UK loans industry is highly regulated. Lenders – all lenders – must include fees clearly and terms and conditions before a loan is approved, making it impossible for lenders to add fees and conditions once a loan has been taken.

The afore mentioned myths relating to secured loans providers work in unison to preserve another that will look familiar…

Myth 6: Secured loans providers are for people with serious financial problems 

The smattering of bad publicity surrounding secured loans providers has followed a theme that such loans are the preserve of the destitute. *sigh* Not true. These loans are used for a variety of reasons like home improvements, or when credit scores mean the computer has said “no”. These can happen to anyone, regardless of income.

Just because you didn’t have access to your money immediately when an emergency expense arose. Or you just needed a little help because the emergency expense wasn’t budgeted for; doesn’t automatically mean you are struggling financially. It’s something most people have experienced at some point in their lives.

Evolution Money recently discovered that a whopping 86% of all recent funded loans were either for Debt Consolidation, or Home Improvements. Both hardly being the preserve of those on the bread line.

Should an emergency expense arise, advice from well-meaning third parties will play to the tune of our final myth…

Myth 7: You are better off without a loan from a secured loan provider

Some secured loan lenders may market their products aggressively. Then again, what industry isn’t pushing the benefits of their commodities with a degree of belligerence these days?

The point is demand for these loans continues to increase globally, not just in the UK. People, the world over, are turning secured loans providers, and are finding them quite useful, especially in emergency situations.

This myth has gathered pace because some secured loan provider customers have fallen foul of astronomic interest charges leveraged by a handful of rogue lenders (Source: https://www.theguardian.com/money/2007/sep/16/debt). As pointed out earlier, this is not typical. In fact, secured loans providers’ products are among the best, if not the best, types of short and long-term loans available today if they are taken wisely, used wisely, and repaid on time.