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Some of the Myths Busted in this Guide:
  • Myth #1: Personal Loans Hurt Your Credit Score
  • Myth #2: Personal Loans, Bad Credit Loans, and Payday Loans Are The Same Thing
  • Myth #3: Personal Loans Are Only For Top Tier Borrowers

BONUS: Also learn what is a personal loan and different ways to use it!



The number of Americans who enjoy the benefits of a Personal Loan hovers around 20 million. Community credit unions and other lenders have made borrowing increasingly simple. But despite Personal Loan availability and more people qualifying, several myths deter people from securing the resources they deserve. By better understanding how a Personal Loan works and what it can be used for, everyday people may be more inclined to apply when they need additional funds. And by offering a fact-based summary that busts common myths, community members can determine if a Personal Loan is the right solution for them.

Personal Loans Revealed: Bust the Myths and Get the Money You Need

  1. What is a Personal Loan and How Can I Use It?
  2. Myths About Personal Loans Busted
  3. Myth #1: Personal Loans Hurt Your Credit Score
  4. Myth #2: Personal Loans, Bad Credit Loans, and Payday Loans Are The Same Thing
  5. Myth #3: Personal Loans Are Only For Top Tier Borrowers
  6. Myth #4: Personal Loans Are The Only Unsecured Loans Available
  7. Myth #5: Applying for a Personal Loan is Difficult
  8. How a Personal Loan Calculator Can Help



What is a Personal Loan and How Can I Use It?

Local credit unions and other lenders offer lump sums of money to qualified borrowers who pay them back with interest. Personal Loans are typically structured in a way that allows the borrowers to make fixed monthly payments over a period of time that fits within their budget and schedule. Some typical factors that determine approval and interest rates include the borrower's credit score, debt-to-income ratio, and borrowing history, among others.

When everyday people do not have the available cash on hand to make quality of life improvements or to pay for emergencies or unexpected costs, applying for a Personal Loan often proves an invaluable solution. The following examples are common ways Personal Loans are typically used.

Personal Loans for Credit Card Consolidation

The average American credit card holder reportedly carries more than $5,300 in debt that accumulates interest on a monthly basis. When people acquire and leverage multiple credit cards, the growing interest often puts them in debt quicksand. But with a reasonably healthy credit score, hard-working people can secure a Personal Loan that consolidates that debt into one monthly payment with reduced interest. This Personal Loan strategy saves money and minimizes the escalating stress associated with credit card debt.

Personal Loans For Debt Consolidation

Similar to getting over-extended with credit card debt, people sometimes find themselves with more monthly payments than they can manage. These may include debts associated with automobiles, boats, medical expenses, vet bills, and a wide range of other monthly expenses. When the accumulation of loan products strains monthly incomes, a Personal Loan for debt consolidation remains a reasonable solution. The outstanding debts would be tallied into one lump sum which would be paid off in full by the Personal Loan. This would save the borrower money in interest and simplify their monthly bills. Potential borrowers often use a debt consolidation calculator or personal loan calculator to see their potential savings.

For more tips on finding the best loan for debt consolidation, review our blog on why a Personal Loan may or may not be the best choice for your situation.

Personal Loans For Home Improvement Projects

Taking out a Personal Loan to make home improvements is another common borrowing strategy. Property owners may decide to leverage a Personal Loan to fund improvements that, in turn, often increase the home’s value. Ranked among the popular uses of the Personal Loan are bathroom and kitchen updates, new roofs, built-in swimming pools, decks, verandas, and basement remodels. The return on investment and quality of life enhancements makes Personal Loans for home improvements an excellent reason to borrow.

Personal Loans For Paying Off Existing Or Upcoming Medical Expenses

The high cost of medical expenses often overwhelms the cash-on-hand many of us have available. Injuries and conditions that require surgery can outpace short-term financial resources. Personal Loans can help pay for long term planned or unplanned medical treatments and procedures while also offering a solution for shorter but still important medical items including braces. Personal Loans are also a great go to solution for your family pet when finding the money for vet bills can be difficult.

Personal Loans Can Pay For Once-in-a-Lifetime Events

An increased number of couples need to borrow money to enjoy a dream wedding. The costs associated with a venue, catering, a band or DJ, and additional logistics reportedly prompts upwards of 74 percent of couples to borrow or take on some form of debt to get married. A Personal Loan ranks among one of the most cost-effective ways to fund a wedding.

Along with weddings, an increased number of families utilize Personal Loan products to fund memorable vacations and other once-in-a-lifetime experiences. The essential point is that a Personal Loan can prove instrumental in making a difference when everyday people need additional money the most.

Despite the proven benefits of taking out a Personal Loan, wide-ranging misinformation exists that sometimes undermines people’s confidence. While it may be true that some of these Personal Loan myths seem to have roots in reality, understanding the facts about a Personal Loan versus products such as Payday Loans, unsecured loans, and Bad Credit Loans allows people to make informed decisions.

To review more ways Personal Loans can help, review our blog on 7 reasons why Personal Loans may be the best choice for you.


Myths About Personal Loans Busted

Access to credible information has become increasingly difficult in American culture. Many people have lost faith in media reports, and click-bait marketing on the internet too often leads consumers down a rocky path. The myths about Personal Loans have also been perpetuated in ways that leave potential borrowers uncertain. By dispelling the following myths about securing a Personal Loan, qualifying borrowers can feel more confident about getting the financial resources they need and finding the right solution.


Myth #1: Personal Loans Hurt Your Credit Score

When developing or maintaining a healthy credit score, it’s essential to understand the long-term benefits of borrowing and timely Personal Loan repayment. The common myth that a Personal Loan will result in a lower credit score stems from people looking only at the short-term loan application process. This short-sightedness often deters people from enhancing their credit score and history through savvy borrowing.

Whenever lenders perform what is commonly called a “hard pull” on your credit history, that inquiry can result in the credit score ticking down slightly. One of the common missteps everyday people make when trying to secure a Personal Loan is to fill out too many applications. Each one typically requires a hard pull and delivers a modest blow to your otherwise stable credit score. In this sense, the notion that applying for Personal Loans hurts your credit score is driven by not conducting due diligence to minimize Personal Loan applications and credit history inquiries.

Given that each hard pull will likely have some modest impact on your credit score, it stands to reason that even a strategic Personal Loan application can result in losing a few points. But the seemingly negative impact in the short term is usually far outweighed by the long-term benefits of securing and repaying a Personal Loan on time. With each monthly installment, a borrower’s debt-to-income ratio is steadily reduced, and those on-time payments have a positive effect on your credit score.

While credit scores typically rebound relatively quickly and responsible repayment helps develop a healthy history, there are ways some people get themselves into a financial pickle when taking out Personal Loans. Having multiple loans or high credit card balances causes an uptick in debt-to-income ratios. In scenarios where someone’s ability to make timely payments gets stretched thin, their credit score could take a hit. That’s why being fiscally responsible remains the key to a healthy credit score.

Although the idea that applying for and securing a Personal Loan can hurt your credit score is a common myth, it has some roots in reality. Poor planning and excessive borrowing tend to be the reason credit scores suffer, not the Personal Loan.

For more tips on how your credit score may be affected, review our blog on 3 ways your credit score can improve using a Personal Loan.


Myth #2: Personal Loans, Bad Credit Loans, and Payday Loans Are The Same Thing

When people look for lending resources, it’s not uncommon to come across marketing promotions that seem to imply Personal Loans, Bad Credit Loans, and Payday loans are one and the same. Such claims couldn’t be further from the truth. Although all three are loans, enough differences exist to consider them very different products.

Getting approved for a Personal Loan is based on the applicant meeting certain criteria. To say the bar for gaining payday or Bad Credit Loan approval is set lower would be something of an understatement. When hard-working people don’t necessarily meet the Personal Loan qualifications, other options such as Bad Credit Loans and Payday Loans come with high interest, excessive fees, and if not handled carefully, can result in a costly slip-up.

What are Bad Credit Loans?

Although Bad Credit Loans may be confused with Personal Loans, there are distinct differences between the two. As their name indicates, Bad Credit Loans are products that people with less than stellar credit scores can secure. The potential borrower may check several of the boxes one would expect when applying for a traditional loan. But a low credit score may prompt some lenders to consider the applicant high-risk or may find a Personal Loan is not the right fit for their financial situation.

Most lenders consider a credit score above 640 “fair”. If the score is under 580, it is considered “poor”. Scores can be improved by correcting any blemishes found on the credit history or taking steps such as reducing debt-to-income ratios.

Getting turned down for a Personal Loan may cause some borrowers to consider a Bad Credit Loan. Bad Credit Loans function in a similar fashion to Personal Loans except they typically feature a much higher interest rate and possibly higher fees. Many involve a steady repayment schedule with fixed monthly payments and can be a viable option in an emergency. Although they can serve as a fallback position when a traditional Personal Loan is not an option, you should review your personal financial situation with a local credit union before making any decisions. Your local credit union will work with you to determine the best solution for your needs without putting you or your credit score in harm’s way.

For more information on bad credit loans, review our blog on bad credit loans and how to avoid a scam.

What is a Payday Loan?

It may be easier to understand a Payday Loan as a type of cash advance on earnings. These loans are typically offered in relatively small sums and require short-term repayment with high fees.

In many instances, a borrower must make full repayment with fees within 30-60 days. Payday Loans are generally unsecured and loosely based on the applicant's next paycheck amount. Payday lenders require minimum approval thresholds that usually include proof of a job, bank account, and an ID that proves the borrower is 18 or older. People with bad credit often leverage the Payday Loan system because they have limited or no access to credit cards or traditional Personal Loans.

Beyond paying excessively high interest and fees, Payday Loan borrowers sometimes get into deeper financial difficulties. Things such as losing a job, missing work, or agreeing to a repayment cycle that strains someone’s resources can result in worsening credit and debt. According to the Consumer Financial Protection Bureau, upwards of 80 percent of Payday Loans are renewed, and working people end up paying more in fees than they initially borrowed.

After reviewing pertinent facts about payday and Bad Credit Loan products, it’s easy to see they bear little resemblance to a mainstream Personal Loan. Unless someone faces a dire emergency, improving credit scores and repayment history may be worthwhile before borrowing. Credible local lenders are willing to work with financially responsible people to secure a better solution.

To discover more about Payday Loans and other financial alternatives, review our blog on the differences between Personal Loans vs Payday Loans. 


Myth #3: Personal Loans Are Only For Top Tier Borrowers

It seems as if every myth has some basis in reality. But it also appears that the myth itself is a misinterpretation of the pertinent facts. The myth that a Personal Loan can only be secured by top-tier borrowers is not necessarily true.

It’s far more likely that everyday people extrapolate from the fact that many of the largest Personal Loans appear more readily available to people with a credit score above 640 and incomes that position them in the upper-middle-class or wealthy one percent. Needless to say, high incomes and healthy credit scores make borrowing seamless in many cases. But to say someone on a modest income and middle-of-the-road credit score cannot secure a Personal Loan is patently false.

Lenders understand there are plenty of good, hard-working community members deserving of a Personal Loan. That’s largely why local credit unions offer Personal Loan products for everyday people who might not have excellent credit. In fact, many applications gain approval even when debt-to-income ratios are borderline, but the individual demonstrates a reasonable ability to make timely repayments.

If your credit score and income are not necessarily considered top tier, it may be worthwhile to take determined measures to position yourself for Personal Loan approval from a local lender. Consider reducing your debt-to-income ratio and lower credit card balances whenever possible. These steps usually improve a potential borrower’s approval chances.

In cases in which you need a Personal Loan expediently but don’t check all the boxes, a cosigner could get you across the finish line. Your cosigner’s credit score will not be negatively impacted as long as on-time payments are made. Earning Personal Loan approval may seem easier for wealthy individuals with top credit scores, but these same products are available to every community member who qualifies.


Myth #4: Personal Loans Are The Only Unsecured Loans Available

Sometimes called “good faith” or “signature” loans, these unsecured products typically do not require collateral. Although Personal Loans are unsecured, they are not the only option available to those looking for a quick solution without collateral to offer in exchange.

Borrowers would be well-served to understand that a lender takes an increased risk when approving an unsecured product. That’s largely because lenders do not have access to the collateral they sometimes need for repayment if the borrower defaults due to unforeseen circumstances. In such instances, lenders may be forced to take a loss. Those risks are reasons why unsecured loans come with higher interest rates and possible fees. The following are examples of other popular unsecured loans.

Student Loans

Applicants are typically afforded educational loans based on need and generally do not undergo a credit check or offer collateral. Not all financial institutions offer student loans, so your school’s financial aid department is a good place to start.

Credit Cards

These types of products may not require collateral to secure them. Lending institutions offer credit cards based on scores, income, and repayment history.

Consolidation Loans: This product can be secured to bring high-interest debt and multiple monthly payments under one roof. As a debt reduction solution, lenders approve them without collateral.

Home Improvement Loan

Property owners who have not yet amassed equity in their house can apply for home improvement loans. The funds are employed to fund upgrades that can result in increased property value.

Revolving Loan

These products include credit limits and allow borrowers to withdraw up to a certain amount at any given time. As long as the borrower makes agreed-upon payments, collateral is not a factor. A revolving loan is very similar to a credit card.

Pension Loan

Retired people sometimes take out an unsecured loan in the event of an emergency. Lenders typically agree that people with steady, reliable incomes are good candidates for unsecured loan products.

Borrowers often have the option of including collateral to decrease interest costs over the life of the loan and gain more favorable terms. These and other options allow qualified borrowers access to funds they might not otherwise enjoy.

For more information on unsecured loans, review our blog on the pros and cons of unsecured loans to help you decide if it is a good fit for your needs.


Myth #5: Applying for a Personal Loan is Difficult

The myth about applying for a Personal Loan being difficult may have held true 20-30 years ago. But the advanced technology and internet make the process relatively seamless.

Personal Loans can be applied for online in a matter of minutes and the funds can be transferred into an account in as little as 1-7 days. Success rates may be improved by potential borrowers conducting due diligence regarding their financial position before applying for a Personal Loan. Personal Loan applicants may want to consider taking the following steps.

Check Credit Report

Everyday people can request a free credit history report from major reporting bureaus every 12 months. Request a report from Experian, Equifax, and TransUnion, to evaluate your borrowing and repayment history. Take measures to rectify any errors and cure any blemishes that may improve your credit score.

Apply Formally

Today’s loan officials eliminate any guesswork by telling community members precisely what they need to complete the formal application. The items typically include a valid government-issued ID, income verification, and a reasonably accurate breakdown of monthly expenses. A hard credit inquiry will be made, and you will know the results relatively quickly.

Once approved, your lender will provide details about the terms, interest rate, and other important facets of the Personal Loan. You can accept the Personal Loan and move forward with the formal closing or decline. Applying for a Personal Loan doesn’t necessarily mean you are committed to taking the lump sum, but qualified borrowers have the ability to utilize the money to make significant quality of life improvements with those resources.


How A Personal Loan Calculator Can Help

Lending professionals possess a clear and concise understanding of the relationship between loan amounts, interest rates, and the cost of a Personal Loan over time. But it’s not unusual for everyday people to worry about the effect a Personal Loan will have on their monthly budget. The good news is that a personal loan calculator can provide the hard numbers needed to feel comfortable about borrowing.

It doesn’t take long to become a savvy personal loan calculator user. Borrowers simply input prospective loan amounts, interest rates, and possible repayment terms. With those estimates in place, these convenient tools give community members an accurate estimate of how it affects their monthly revenue. But a personal loan calculator provides even deeper insight into borrowing that can be utilized when you look below the surface.

Interest Rates

Potential borrowers can alter the interest rate numbers to assess how it impacts monthly repayment. With a loan amount in mind, the personal loan calculator allows borrowers to estimate what interest rate is needed for borrowers to have a comfortable payment. Knowing what interest rate is required helps borrowers identify if a Personal Loan or other potential secured loan product may be the best fit.

Down Payment Impact

Personal loan calculator users can also see the effect a down payment could have on the total loan repayment. Using some of your savings to reduce the total amount needed to borrow could result in lower monthly installments and reduce the amount of interest paid over the life of the loan. These user-friendly estimating tools highlight ways borrowers can save money.

Budget Planning

Taking out a low-interest Personal Loan to pay off other debts is typically a wise choice. Totaling your existing debts and inputting that amount into a personal loan calculator may offer the borrower confidence as they see the lower monthly loan payment.

Using a personal loan calculator ranks among the top ways to understand the influence of wide-reaching factors on personal finances. By working through the numbers, borrowers can identify the best-suited interest rates and manageable repayment terms. But the true bottom line is that a personal loan calculator helps working families feel comfortable about their borrowing needs.

To discover how much you can comfortably borrow, review our blog on personal loan calculator tips to help you determine an interest rate and payment that will work with your budget.


Local Credit Unions Remain Top Resource for Personal Loans

Securing a Personal Loan has never been easier than it is right now. Common uses such as credit card consolidation, medical expenses, weddings, vacations, home improvements, and unexpected costs are the tip of the iceberg of possibilities. The reality is that qualifying for a Personal Loan can fund a seemingly limitless number of anticipated and unanticipated expenses.

Contact Allegiance Credit Union to see if a Personal Loan is the right solution for you, or if you are ready to get started, apply for your Personal Loan online today!

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