Personal loan myths to leave behind in 2025

If you need to borrow money to cover an unexpected bill to consolidate debt, you may have considered a personal loan. Some people may not think getting one is a good idea because they’ve heard that personal loans are hard to get, require perfect credit, or need collateral.

These are common misconceptions about personal loans. Generally speaking, these are flexible loans that are available to borrowers who meet the qualifications of a lender. We’ll correct some common personal loan myths so that you can decide if one is right for you.

4 common myths about personal loans

Many people have incorrect ideas about personal loans, especially about whether they’re hard to get or how the application works. We’ll break down some common myths you may have heard about them.

Myth 1: Personal loans always have high interest rates

It’s common for people to believe that personal loans come with high interest rates. Typically, this misconception comes from high-risk loan options, which can sound similar, such as payday loans or car title loans, which can have APRs as high as 300% or more.

Personal loans are very different and come from legitimate lenders, such as online lenders like Rocket Loans℠ and banks or credit unions. People with good to excellent credit scores can qualify for reasonable rates that are lower than those charged by credit cards. You can check the current rates available to you for a personal loan from Rocket Loans℠ here.

Myth 2: Only those with excellent credit scores can get approved

Many people believe that they need an excellent credit score to qualify for a personal loan. While strong credit is always a plus, making qualification easier and letting you land a lower rate, it is by no means necessary, and even people with credit scores ranging from fair to good can qualify.

Many lenders have minimum credit scores in the range of 610 to 640, which is achievable for many people.

Myth 3: The application process is complicated

Any time you apply for a loan, you need to fill out an application. You may worry that personal loan applications are difficult and time-consuming, but they tend to be relatively simple.

With Rocket Loans, you’ll need to provide three basic documents:

• Proof of income, such as a paystub
• Proof of identity, such as a driver’s license
• Proof of address, like a utility bill

During the application process, you’ll follow four basic steps:

1. Understand the loan amount you need. Make sure to borrow enough to cover your financial needs and account for any fees you might pay.

2. Complete the loan application. Fill out the paperwork and submit it to your lender.

3. Collect the above documents. Your lender will provide you with information on what documents are sufficient and the best way to submit them.

4. Submit the loan application. Send the full application to your lender.

While looking for personal loans, it’s a good idea to apply with multiple lenders so you can get quotes, compare terms, and choose the best deal for your needs. This way you’ll know you made the best choice available to you.

Myth 4: Collateral is required for approval

Some borrowers believe that collateral, meaning something of value that you can provide to secure the loan, is required for a personal loan. While some lenders offer secured personal loans, Rocket Loans℠ and many other lenders offer unsecured loans. That means that you do not need to provide collateral to qualify for a personal loan.

What to know about personal loans and their benefits

Personal loans are popular for many reasons, and if you’ve been worrying about some of the myths that we’ve covered, you might not be aware of some of their benefits. These are some of the ways that a personal loan can be helpful in a financial pinch.

Credit score impact

Any time you apply for a loan and take on more debt, it will impact your credit score, causing it to drop by a few points. However, getting a personal loan can also benefit your credit in the long run.

For one, having another loan that you have to pay each month gives you the opportunity to add to your positive payment history, which is one of the most important factors affecting your credit. It can also diversify your credit mix.

Depending on how you use the loan, you may see other benefits too. For example, if you use the loan to consolidate debt, it can help you boost your credit by paying down your other balances.

Predictable fixed payments

Most personal loans, including those from Rocket Loans℠, have a fixed interest rate and follow a predictable payment schedule. You’ll always know how much you need to pay each month, which can help you build a budget that accounts for the loan payment and give you better control over your finances.

Fast funding

Personal loans have relatively quick approval and funding processes. Many lenders complete the underwriting process within a week and fund the loans on the same day they’re approved, making personal loans helpful for those in a financial pinch.

Understanding the versatility of personal loans

One of the biggest benefits of personal loans is their versatility. You can use them for almost anything, and their lump sum distribution offers flexibility for borrowers.

Depending on your credit score and other factors, you may be able to adjust the precise amount you borrow based on your needs. Personal loans can be as small as $1,000 or as much as $100,000 or more based on the lender.

The funds from a personal loan can be used for many things ranging from a special occasion such as a wedding to meeting emergency financial needs. Here are just a few of the many ways you can use a personal loan.

Debt consolidation personal loans

One popular use for personal loans is debt consolidation. You take out a new loan and use the funds to pay off multiple other loans or credit card balances. Typically, the personal loan has a different term or a lower interest rate.

This can convert multiple monthly bills into one that is easier to handle and may save you money in interest over the long run. You can find out more about debt consolidation loans from Rocket Loans℠ here.

Home-improvement personal loans

If you own a home, you know how much even a simple home improvement project can be expensive. While some people use home equity loans to cover these costs, personal loans may be a good alternative to fund projects that can add value to your home and they may be a cheaper option than using a credit card. You can find out more about home-improvement personal loans from Rocket Loans℠ here.

Personal loans for other needs

There are very few limits on the ways you can use funds from a personal loan, so people turn to them for many different reasons, such as emergency medical expenses, car repairs, weddings, and more.

If you find yourself in need of cash, a personal loan may help. Just be careful to avoid overborrowing or borrowing money when you don’t truly need to do so. You can check rates you may qualify for from Rocket Loans℠ here.