We live in a day and age where temporarily depending on loans is a normal means to get us through a difficult financial situation. But because different people have different financial situations and different credit scores than one another, not every type of loan would be perfectly suited for everyone. Income-based loans are one form of borrowing money that can be used in certain situations. Unfortunately, there are various misconceptions regarding income-based loans’ functionality and the nature of them; however the misconceptions remain nothing but a mere misunderstanding of what they really are.
There’s a false misconception hovering around income based loans, which is that they are always unsecured. That is not always the case, the truth is they can either be secured or unsecured based on your choice. With secured loans you need to offer a property to the lender as a guarantee in case of failure to repay. On the contrary, unsecured loans don’t require any warranty, but the interest rate will be higher because it’s a greater risk to the lender.
Income-based loans aren’t only for people with poor credit history; there are many other situations where people need a swift way to get cash or in case of an emergency. There’re many lenders who observe the borrower’s monthly income and question the ability of repayment; in most cases, lenders loan money based on factors as such. However, people with bad credits can still borrow money, among others as well.
Income-based loans and Personal-loans are Different
There are many who believe that income based loans are different than personal loans when they’re one and the same. The reason behind the name “personal loans” is that sometimes the bank would refuse to lend money to people with bad credit, so these people go to lenders who are willing to lend money and based on that they have a personal agreement one that’s not based on credit.
Through the Roof Interest Rates
Loaning arrangements and interest rates are a dynamic duo; you can’t borrow money without giving it back with interest. The same thing applies to income-based loan interest rates; the only scenario where interest rates are very high is if the bank account has a history of bad credit, other than that, interest rates come at a reasonable rate.
One of the many myths about income-based loans is that the only lenders who are willing to help borrowers are predatory lenders, who hunt vacant bank accounts or ones with bad credit and lend them money, so they can have a higher interest rate. However, borrowers have the freedom to choose between a risky loan and a safe one based on the type they choose, so it’s not up to the lender.
It’s normal to have doubts and fears upon something that you are yet to be familiar with, especially if it’s something as risky as loans. There are plenty of people who misunderstand the workings of loans and their nature based on their reputation throughout the society; however, loans have gone through many changes to create a safe environment for borrowers, such as income-based loans.