When looking for the best personal loan, licensed lenders are a good alternative to banks. Fast, easy and convenient, approved lenders speed up the process, turning what could take weeks into days.
Depending on the type of personal loan, approved lenders are more lenient with their money, allowing them to lend to more people. This makes approved lenders faster and more ideal for smaller sums.
However, some might think that personal loans from approved lenders are not as legitimate. This mindset, while valid at times, unfortunately limits the personal loan options available.
This is not only detrimental if you need a personal loan quickly, but it is necessary if you have a lower credit score and are unable to get a personal loan from the bank.
To better understand approved lenders on a balanced scale, here are four common myths you should avoid when considering borrowing from approved lenders.
4 myths you should avoid when considering a personal loan from an approved lender
Myth 1: All loan sharks are loan sharks
Loan sharks (or “Oh long”) are unlicensed lenders who use illegal tactics to promote, encourage and lend personal loans. Often they go through unsolicited telemarketing text messages and messages regarding their personal loans.
In case of default, they charge exorbitant interest rates and resort to unregulated harassing methods to drive out debts. These tactics often harm neighborhood communities and can lead to unwarranted violence in order to get their money back.
These are the loan sharks we should all avoid. Unfortunately, many approved lenders get it wrong.
Licensed lenders, on the other hand, can be recognized by their license number. These figures are administered by the Department of Justice and can be found on their comprehensive list of approved lenders on their website.
To compare approved lenders and their personal loan rates based on your needs, Lendela is a good option.
Lendela allows users to compare different personalized personal loan offers based on their needs and credit history, so one can be sure that they are getting a legal personal loan from approved lenders that suits their budget. and their credibility.
Myth 2: You can’t take out a personal loan with a low credit score
The truth is you can. Approved lenders are open to providing personal loans to people with low credit ratings, provided they have clear evidence of a steady stream of income from employment to repay the loan. They will not charge any excess interest rate and may sometimes provide debt consolidation services.
In fact, taking out a personal loan from an approved lender can help improve your credit score. Since the credit score is usually difficult to improve, this is a good opportunity to move it to a better place.
Myth 3: Secured personal loans from approved lenders are better than unsecured loans
Backed by collateral, secured personal loans are generally preferred for low interest rates. It allows borrowers to borrow a larger amount from an approved lender and allows them to spread their payments over a longer period. Examples include mortgages and auto loans.
Unsecured personal loans (for example, student loans) have no collateral. Instead, they are granted by an approved lender based on the reliability of the borrower.
However, that means it comes without the benefits of a secured personal loan – higher interest rates while borrowing a lower amount. They also need to repay their loan as soon as possible.
Although secured loans may seem favorable due to their advantages, approved lenders would need more time to process, evaluate and approve the collateral. This makes the borrowing process much slower, which may not be favorable for borrowers who are in dire need of money.
To choose the best option, one must consider the reason for the loan. If you are a short term borrower, select an unsecured loan. However, if you are able to wait through the entire collateral approval process, secured personal loans might be your best bet.
Myth 4: Approved lenders have higher interest rates than banks
Approved lenders are actually tightly regulated and they are not able to charge an interest rate higher than that stipulated by the Department of Justice.
In fact, the regulations facing banks are slightly more lenient. Although their interest rates are lower, there is no law preventing them from charging higher interest rates. As a result, some banks charge much more than all approved lenders.
So what is the maximum interest rate an approved lender can legally charge?
According to the Department of Justice, approved lenders can legally charge late payment interest of up to 4% per month. This limit is effective whether it is a secured or unsecured personal loan and the income the borrower earns.
Interest can only be charged on the remaining money that has not been paid. This means that if Person A took out a $10,000 personal loan and repaid $8,000 on time, only the remaining $2,000 should be charged for late interest.
Remaining amount that has not been paid:
$10,000 – $8,000 = S$2,000
Therefore, $2,000 is payable in interest
Interest may also be charged only for amounts that have been paid late. For example, Person B took out a personal loan of $10,000 repaid in installments of $2,000. He did not pay his first installment. This means that only the $2,000 of this late payment is chargeable to late payment interest.
Other fees approved lenders may charge according to the Department of Justice include:
- A fee not exceeding $60 for each month of late repayment
- A commission not exceeding 10% of the principal of the loan when a loan is granted
- Court-ordered legal costs for a successful claim by the lender to recover the loan.
This article was first published in ValueChampion.