Millions of people utilise personal loans as a means to get cash when they need it. They might need a cash injection to buy a great car while it’s on special offer. They might simply not be able to wait to embark on the adventure of a lifetime, or they could possibly just need a little extra money to tide them over. In most cases, people pay off their personal loans in the timeframe agreed upon with a provider and experience no problems, but of course, there are certain risks associated with loans if you’re not responsible with them. This article will explore personal loans and provide you with all the basic information you need to know, as well as offer some top tips on how to find the best providers.
What is a Personal Loan?
In the most basic terms, personal loans are borrowed from a finance company – banks in most cases – that are repaid over an extended period of time with a certain amount of interest. If you go through asset based lenders you can use some sort of personal asset, like a home, as collateral for a loan. If you have a good credit rating, you might be able to receive a loan with a low interest rate. In some situations, if you have a bad credit rating, you may be refused a loan from most companies, including the major banks.
However, banks aren’t the only loan providers, though their interest rates are often the most favourable compared to other companies working in the finance industry. Oftentimes, the best interest rates are offered by banks to their existing current account customers, though it’s still worth comparing the market thoroughly just in case another provider is willing to beat promotional deals.
The main issue with borrowing money from a bank is that you might be refused if you have a bad credit rating, and it can take time to build up your credit rating in order to be eligible for a loan. Nowadays, we’re seeing a huge increase in popularity of payday loan providers, alternatively known as short-term loan providers. Borrowing from these companies, as with most others, is not too risky so long as you know you’ll be able to return the cash – with interest – on the date agreed. However, many people would argue their interest rates are extortionate, and you could find your debt spirals out of control should you be unable to return the cash quickly.
But even short-term loan providers often refuse people with a bad credit rating or history. You might think that you simply have no options left if you really need a cash injection, but you might be able to get a guarantor loan. TFS Loans are a company that offer guarantor loans to people who have a friend or family member that is willing to guarantee their payments should the actual loan receiver fail to pay. Of course, this kind of loan requires that you know somebody who trusts you enough to agree, but guarantor loans are often obtainable for people with bad credit ratings where bank loans might not be.
A final option would be to simply ask friends or family to provide you with a loan, thereby eliminating the need to ask a finance company for help. Unfortunately, friends and family could be unwilling to part with their cash, or they simply might not have enough to lend you. You can visit this link for loans explained in greater detail.
The Benefits of Personal Loans
A lot of people think that personal loans should be avoided unless absolutely necessary, and while that’s undeniably true in many situations, there are actually many benefits to personal loans that people neglect to think about. Needless to say, loans should only be sought after if you know as a matter of fact that you’ll be able to meet the required payments. However, here are a few of the main advantages of personal loans so that you’ll be aware of how they can help.
- They can help you raise your credit score
In a way, it’s extremely annoying how important our credit scores are. Nevertheless, they’re used by companies to help them determine how trustworthy and responsible you are with your finances. One way to boost your credit score is to prove that you can be trusted to pay off debt, which is why many people choose to spend money on their credit card and pay it off each month – without spending more than they can afford or going over their limit.
Needless to say, if you take out a personal loan and miss payments on a common basis, your credit rating will be negatively affected. The same can happen if you only pay off the minimum amount of interest each month. However, if you stick to your agreed terms and complete your scheduled repayments on time, or pay off your debt early, you credit score can actually increase.
- You can spend the money on whatever you like
If you take out a car loan, you’re probably going to have to spend the money on a car. If you take out a mortgage, you’ll receive a loan that is specifically for a property. The money is unlikely to ever even go into your bank account; the bank will pay for the full cost of your home, and you’ll repay the debt for many years to come. This isn’t to suggest that these types of loans should be avoided, it’s merely to highlight the fact that one advantage of personal loans is that you can spend the cash on whatever you like.
You might see a second-hand car in top-notch condition that’s being sold for an absolute steal. However, if you don’t currently have the money on hand to purchase it, you’ll be forced to miss out on a great opportunity. Instead, you could secure a loan as a means to purchase the vehicle, though it’s a good idea to compare how much the loan is going to cost you versus how much you’d typically have to pay for such a vehicle.
- You can often get the money very quickly
It rarely takes more than one hour to apply for a loan, and you could receive the money within a matter of days if your application is successful. Of course, nowadays, the application and assessment process has become a little trickier given that banks are more paranoid about who they give money to. But, if you have a good credit score and have proven yourself responsible with your finances, the chances are you’ll receive your loan in no time at all. Remember, if the banks refuse you a loan, you do have other options such as guarantor loans.
The Disadvantages of Personal Loans
Needless to say, there are some downsides to personal loans that should be considered thoroughly before you apply for one. Again, if you’re responsible with your repayments, personal loans give you very little to worry about, but the consequences can be severe should you fail to return the cash.
- You might have to risk your assets
Some loan providers may wish to provide you with a loan that is equal in value to something you possess, such as your car or your home. While that sounds like something that would make being accepted to receive a loan easier, it does mean you could lose something extremely valuable to you should you fail to make payments. This is something you should think about carefully because your situation might change without notice.
- It’s an extra monthly outgoing
Most people nowadays are trying their best to reduce their expenditure and save money. It’s important to remember that you’ll have to pay a potentially hefty sum each month until your loan is repaid, and that’s going to affect your budget. You must make sure the monthly costs are affordable before applying for a loan.
- You’ll have to pay interest
Needless to say, finance companies need to make a profit, and that profit comes in the form of interest when it comes to personal loans. Different providers will offer wildly different interest rates, and it’s a good idea to compare as many companies as possible before signing any contracts. You can compare loans here to get started.
Top Tips for Finding the Best Loans
As we’ve just mentioned, you’ll definitely need to compare a range of loan deals, but here are a few other tops tips to bear in mind when it comes to making your final decision.
- Always read the small print. It’s boring, it takes time, but it’s vital to make sure you understand what you’re getting into.
- Sometimes, interest rates can be lower for higher loans. It’s worth checking whether you could save money by taking a slightly higher loan than you need.
- Don’t apply for too many loans in a short space of time should you keep being rejected. It’ll hurt your credit score.
- Thoroughly consider whether you really need the loan. It’ll likely take years to pay back.
Be responsible with cash, know that you can meet your monthly payments, and taking out a personal loan will likely be unproblematic.