Living a normal life in the 21st century means accepting debt as an inevitability. One way or another, the overwhelming majority of people will have no choice but to seek financial support at various points in their lifetime.
Mortgages, car finance, personal loans and so on – all everyday norms for people across the United Kingdom. But in all instances, it’s important to be mindful of exactly what it is you’re getting yourself into. Not to mention, determine whether or not you’re making the right decision.
Here’s a brief overview of everything to consider before taking out a loan:
Before taking things a step further, you need to determine (realistically) whether or not you are eligible for the loan you intend to apply for. This will be determined by various criteria, including your employment status, income, credit history, current financial position, homeowner status, age and so on. Avoid applying for any loans you’re unlikely to qualify for, as doing so could harm your credit score.
How Much You Can Afford
There’s often a difference between how much an applicant would like to borrow and how much they can afford to borrow. Nothing matters more than carefully considering your budget and ensuring you stay within your means. Using an online loan calculator can help, if you’re not entirely sure how much you can afford to borrow.
Overall Borrowing Costs
Don’t forget that the overall cost of any form of debt extends far beyond interest rates alone. You may also need to take into account setup fees, administration fees, completion fees, early repayment fees and so on.
Would you prefer to pay the loan back as quickly as possible to keep costs low? Or is a longer-term loan with lower monthly repayments more suitable for your budget? You will need to determine which is the better option for you.
Popular Loan Types to Consider
When the time comes to apply, you’ll find yourself with an endless array of loan types to choose from. Each having its own unique advantages and disadvantages – several of which are detailed below:
- Payday Loans
Handled responsibly, payday loans can be great for addressing financial emergencies as quickly as possible. Car repairs, broken boilers and so on – all the kinds of cases that can be covered with a same-day loan. Nevertheless, it’s important to ensure payday loans are repaid as promptly as possible, as they tend to attach astonishingly high rates of interest.
- Consolidation Loans
If you are struggling to meet your repayment obligations in general, consolidation loans can be used to pay off all (or most) existing debts and replace them with one smaller monthly payment. Often with a much lower rate of interest.
- Personal Loans
Personal loans are the standard unsecured loans offered by major banks and lenders, which can be used for almost any routine expense. They are typically available in sums of less than £10,000 and eligibility is determined by way of financial status and credit history.
- Bridging Loans
A bridging loan can be used to make a relatively major purchase when time is a factor. In a working example, a bridging loan for £250,000 could be arranged and paid out in as little as three days, in order to cover the purchase of a property at auction. After which, the balance is repaid in one lump sum around six months later.
- Secured Loans
Any loan that is issued using the borrower’s property or assets as collateral is referred to as a secured loan. Providing security to cover the cost of a loan can result in significantly lower interest rates and more competitive borrowing costs.
- Bad Credit Loans/Mortgages
Last but not least, bad credit loans and mortgages are designed specifically for applicants with an imperfect credit history. Typically unavailable from major High Street lenders, specialist service providers usually issue bad credit loans on the basis of collateral or security. Overall borrowing costs may be slightly higher than those of traditional loans, but can still be surprisingly competitive.