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Loans can be a great way of getting you out of a financial bind or funding an emergency purchase.
However, it’s important to not be reckless when it comes to taking out loans as they can definitely lead you to financial ruin.
Today, I’ll be looking at how loans work, how you should go about applying for personal loans and how you can determine if they’re suitable for you.
Personal loans are an attractive option for many people to fund their luxury purchases.
It’s important to keep yourself in check because taking out loans without thinking it through can land you in a lot of debt. You’ll find it’s very easy to get into debt but very hard to get out of it.
If you’re struggling with your loan repayments, you should speak to your lender immediately. Get them to understand your situation; provide as much proof as you can.
I always think it’s a good idea to get in touch with your lender before you miss your monthly repayment but you feel like there’s a chance that you will.
You might be able to get them to agree to a payment break or some other form of help such as lowering your monthly repayments.
If you’re unable to pay your loan arrears and you don’t discuss this with your lender, then you will be sent a default notice.
A default notice is a letter which allows you to catch up on your arrears. You will most likely be given 2 – 3 months to respond to it and make up for your loan arrears.
If you fail to do so and miss 2 – 3 more payments, your lender will start taking action against you. This could be:
Once again, I have to stress that if you fail you’re struggling with your monthly payments or if you feel you’re not going to be able to make your next monthly payment, you should get in touch with your lender immediately.
Communication is key. Not only will your lender understand but they might offer you options to help you as well.
These could be:
It’s very important to know what you’re looking for when you’re in the market for a personal loan. If you enter into a personal loan agreement without fully understanding it, it could lead you to financial ruin.
Here are some things you should look at when opting for a loan:
Most loans come with an advertised interest rate (also known as the representative APR). This is typically the standard interest rate that is given to individuals that opt for that loan.
However, you may not always get the same interest rate as the representative APR. The interest rate you’ll be offered will depend on what type of loan you’re getting (secured loan, unsecured loan, mortgage loan, homeowner loan, guarantor loan, etc.), how long the duration of your loan is going to be and what your credit score is.
Be sure that before you apply for a loan, you check what the interest rate you’re being offered is.
Interest rates are important to know about as they have a huge effect on the total amount repayable to your lender. High interest rates will lead to you paying a much higher amount of money than what your original loan amount was.
Of course, the duration of your loan is going to matter because it will determine the amount of time over which you’ll be paying it off.
It may seem tempting to have a long term so that you pay a lower amount each month but in reality, the longer term you’ll have, the more you’ll be paying off in interest overall.
Thus, when it comes to loan terms, it’s better to have them as short as you can afford them to be.
This goes without saying but you should always compare loans offered by different lenders and compare them in order to get the best possible deal for yourself.
Make sure that lenders you’re approaching are authorised and regulated by the Financial Conduct Authority (FCA).
If you have a bad credit score, your option may be a lot more limited. You may have to look at specialised lenders and the interest rates you’ll be offered will be a lot less competitive.
It’s important to find the right balance between a lender who’s offering you a good deal and them having requirements which mean that you’re application is likely to be accepted.
When you want to borrow money and are looking for a loan, it may be tempting to apply to several lenders. I highly suggest that you avoid doing this as this will affect your credit rating in an extremely negative way. Always choose a lender beforehand and only apply to that single lender.
Some lenders may require to do a credit check on you before they provide you with a quote. If this is the case, make sure you ask them to do a “soft search” as this does not show up on your credit file.
This ties back up to the rate of interest but it’s important for you to calculate what the total amount repayable by you is going to be.
Of course, it’s going to be more than the original loan amount but you have to calculate whether it’s worth it to get the loan or not. You don’t want to be paying 90% or sometimes even 100% more than what you originally borrowed.
You can check out a loans calculator online which can help you determine how much you’ll be paying back depending on your rate of interest and your loan duration.
It’s a mission of mine to make people aware of lenders that are trying to take advantage of them while simultaneously shining a light on lenders that are helping individuals by providing them with flexible options.
Below is a list of links to reviews of different lenders currently operating in the UK:
Loans can be tricky to apply for but as long as you look out for unsuitable rates of interest and do a thorough assessment of your finances, you can find one that’s suitable for you.
Just be sure that your financial circumstances will allow you to pay it back comfortably.