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5 personal loan myths debunked

Written byPeter Kent
Last Updated18th November 2022

At Koyo, we pride ourselves on being open and transparent, especially when it comes to personal loans. In this article, we explore the most common myths.  

Myth #1  You’ll always get the advertised APR 

APR stands for Annual Percentage Rate, this shows how much the loan will cost to borrow per year. The APR you see in adverts, will always be the ‘REP APR’ – which means the representative APR. It’s called representative as 51% of people who apply for the loan have to receive the advertised rate. However, just under half won’t. The best way to find out the rate you’ll get, is to apply for a quote at a lender that won’t impact your credit score. That way, you’ll get a personalised personal loan quote and be able to make a more informed decision. 

Myth #2 – You need to go to a bank branch and fill out loads of forms 

These days, whilst you can still visit a branch to apply for a loan, most loan applications can be done online. A number of lenders are now 100% online – Koyo being an example of this. This push online has driven prices down, as lenders have to compete with each other more often due to people choosing loans on price, rather than the lender they bank with. 

Myth #3 – Personal loans will hurt your credit score 

The opposite is true. Having a loan and making repayments on time until the loan has been fully paid off will actually give you a better credit rating. If you’ve never had a loan or credit before, it’s likely you’ll have a ‘thin-file’ with the credit agency, and find it difficult or expensive to obtain credit. There are 6-8 million people in the UK in this position. At Koyo, we’re solving this by using technology to check spending habits to make lending decisions, rather than relying solely credit files. 

Myth #4  You have to have a good credit history to get a cheap personal loan 

Whilst this used to be the case, things have changed considerably in the last few years. Challenger banks and other fintech’s are solving this problem by offering alternative ways to make decisions on the risk level of borrowers. For example, some lenders offer the ability to use a ‘guarantor’ to step-in in case of a borrower not being able to pay the loan. This in turn reduces the cost of the loan, as the risk to the lender is minimised. At Koyo, we use technology to enable us to make decisions on peoples spending habits which we think is a great way to offer people competitively priced loans, who otherwise wouldn’t be able to access them. 

Myth #5 – The more loans you apply for, the more chance you’ll get accepted 

This isn’t true. Some lenders leave a ‘hard’ search on your credit report. This has a negative impact on your ability to borrow personal loans as it reduces your credit score. It will also make you look like a less stable borrower, as you’ve applied to lots of different lenders. 

It’s best to compare APRs and use loan calculators to work out affordability before applying.  

Koyo’s take in a nutshell: 

Research well before applying for a loan. There is a lender for every situation, so pick the right lender for you before proceeding.   

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