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A Quick Guide on Personal Loans in the UK
Having a poor credit rating can be a huge stumbling block when you’re trying to take out a loan. Lenders will generally view you as a high-risk borrower- one that is likely to default if they will lend money to you. While your options may not be as abundant if you have a good credit score, there are ways that you can still avail of one. You just have to be prepared to make tradeoffs though in order to secure lender approval.
Start improving your credit
If your need for cash is not an emergency, you can start by rebuilding your score first. It would usually take you about six months to pull your ratings up, but it might be well worth it if it means having better loan terms and deals afterwards. Securing a credit card aimed at building your credit is one option to consider. It helps too if you will work hard on paying your bills and other financial obligations on time as these will reflect on your score.
Look for bad credit lenders
There are lenders that specialise on assisting borrows with less than perfect credit scores. You must understand that these lenders have to contend with a much higher risk of letting you borrow from them. So, it is to be expected that they would want to take extra steps in mitigating these risks. Oftentimes, they do this by raising the interest rates so, be prepared for a rather expensive loan terms.
Find a guarantor
This is a third party that will act as the security for the repayment of the loan. He must have a good credit standing since the terms of the loan and the interest rates would depend on his financial state. In addition, the amount you’ll be allowed to borrow will also depend on his score. It is essential to understand though that as a guarantor, he stands as the one that will have to pay off the loan in the event that you will default.
Apply for a secured loan
Another way to get approved for a loan with better offers even when your credit is poor is through a secured loan. This is where you present collateral such as a property or any valuable asset to secure the amount you are borrowing. Be aware that the loanable amount will be dependent on the actual value of collateral. Generally, this helps those borrowers that want to borrow a larger sum. You do have to be careful with this type of loan as you stand to lose the asset that you’re making as collateral if you fail to keep up with the payments.
There are certain situations when getting a personal loan may be a viable option. Unlike other loans that are earmarked for a specific purpose only these types of loans tend to offer the borrower a free rein on how to use the funds once released.
An auto loan has the car itself as collateral and the collateral for a mortgage is the home. Most of the time, personal loans are unsecured. As a result, the rates involved are going to be higher. You may also sign up for a secured personal loan if you have some valuable asset you can put forward and lower the interest rate in the process.
Below are some of the instances when taking out a personal loan is a good idea.
Improve your credit
There are certain ways that taking out a personal loan can benefit you. If you happen to have mostly credit card debts on your record, you can benefit from adding a different type of debt in your history to mix thing up and a personal loan can do just that. It can help the utilisation ratio of your credit card since you will not have to max out your credit limit, thus giving you a better credit score. If you pay the loan in time, then you can benefit from getting a better credit score.
Cover unexpected Medical bills
Nobody plans on getting sick but sometimes, you or a family member might be faced with an unexpected illness. Instead of just worrying where you can get the money to cover the costs involved, you can secure a personal loan to finance the treatment. The fact that personal loans are not restricted to be used for certain purposes only makes it ideal among the borrowing public.
Consolidate your credit card debts
If you have a two or more credit cards which are charged to their limit, a personal loan can be a good option to consolidate them and get the charges combined into one single loan that you can pay off every month. Aside from the convenience of having only to deal with one single loan, you also get the possibility of APRs or annual percentage rates that are lower compared to what’s attached to your credit cards.
Funds for standing a business
If you have an idea for a small business but is having a hard time securing the funding you need through traditional loans, going the personal loan route might just be the choice for you. It could help get your venture off the ground. Once the loan is paid off, then you can just take another one if you have plans to expand. If you make timely repayments, your credit score might significantly improve which should give you the chance for a bigger loanable amount and even better rates.