Whether you need to pay for an expensive medical procedure, renovate your home, purchase electronic equipment or consolidate your debt, you may find yourself having to borrow money. In the end, the reason why you need to borrow money is not as important as knowing where to get it from. Having the information needed to make an informed decision is usually half of the battle.
This having been said when in need, most individual resort to applying for a personal loan. These have seen considerable growth in popularity in the last ten years, mainly due to the fact that it is easy to get them. However, personal loans are not the only option you have, especially if you need a large amount of money for an extended period of time.
Fewer people are aware of the possibility of getting a line of credit, although these can be just as useful, if not more so. So, how can you determine which one is a better fit for your needs? Here are three steps that you can use to decide:
Decide What Expenses You Need to Cover
The first thing that you need to do is to determine what kind of expenses you need to cover and what their value will be. This means that you will have to look at the amount of time that they will span across and try to create an expense budget.
For example, extensive medical treatments often have to be paid in steps, which means that you do not need a large amount of money at once. In this case, having access to a larger account that you can draw money from on an as-needed basis may be more useful.
Know What Each Can Do for You Before Making a Choice
Once you determine what your expenses will be and how you need to pay them, it is time to consider your options.
Personal loans are easy to get, they are usually unsecured, and they come with no restrictions in terms of what you can do with the money. The amount of money that you can borrow is usually based on your credit rating. The higher the rating, the bigger the amount of money that you can borrow will be.
Once you get the loan, you will pay interest for the entire amount, and you will have to repay the money on a monthly basis.
Lines of credit are different from personal loans, at least on a technical level. These work similarly to credit cards. By getting a line of credit, you will gain access to an account that you can use to borrow money from the bank. What differentiates the line of credit from a personal loan is that with the former you only pay interest for the credit that you use and only if you do not return the money by the end of the month.
For example, if you take out a line of credit that has a limit of £15,000 and you use £1,000 of it, you will only pay interest for the credit that you’ve used. If you do not take out any money from the line of credit, then you will only have to pay a small administration fee.
Understand the Eligibility Requirements and the Terms and Conditions
Lastly, you will have to look at the requirements for each type of deal. For example, personal loans are extremely easy to get and are usually unsecured. On the other hand, lines of credit will require collateral. Depending on how much money you want access to, you may have to put up your car or your home as a guarantee.
This also means that if you are unable to pay a personal loan on time, there will be fewer consequences than if you are unable to repay a line of credit. With the former, in a worst-case scenario, the lender may take possession of your home.
To Sum It Up
Both personal loans and lines of credit are extremely useful, as long as you understand the risks and benefits that come with them. Determining which one is the best fit for you is more a matter of understanding how you will have to spend the money rather than a repayment issue. Go through the steps that we’ve detailed above, and you should be able to make an informed decision.
One of the reasons why a lender would reject a loan application is the applicant’s credit rating. Credit rating refers to an estimate of a person’s ability to fulfil his financial obligations after considering his past dealings. A person that pays his debts on time could get a good credit rating while someone who delays his payments or defaults on loan could get a poor credit rating.
Several agencies in the UK keep a record of people’s credit score, and this information is accessible to borrowers and lenders. However, some lending institutions have their way of knowing when granting a loan to an applicant could be safe or risky. Other financing firms do not consider credit rating at all. However, a weak or good credit record can affect several aspects of the loan.
Not all borrowers get the same amount when they take a loan. A finance company that lends £100 – £5000 may extend an investment of only £100 for a first-time borrower with lousy credit while someone with good credit can get a loan of £1000 – £3000. One way of making sure that you can borrow a significant amount from a lending company is by improving your credit rating.
Annual Percentage Rate
A borrower’s credit rating would also affect the annual percentage rate or APR of the loan. If you have a low credit rating, you might have to pay a high-interest rate while those with high credit rating would pay low-interest rate.
Lenders consider people with a low credit rating as high-risk clients because of the possibility that they might not be able to pay their loan on time or they might not be able to settle their debt at all. A high-interest rate would allow lenders to get back a considerable portion of his investment in case a borrower would be a delinquent payer.
Terms of the Loan
The payment period for a short term loan can be from six months to 12 months. However, a lender might require a borrower to pay back his debt within a shorter time, such as within six months. They are giving borrowers with bad credit 12 months to pay back increases the possibility that he would miss or delay some payments, while lenders trust them to pay back their loan on time.
People with a high credit rating can quickly get a loan from several lending institutions and enjoy great deals. Repeat borrowers with a good record can borrow more than the amount of his first loan. However, if your credit record shows that you had a hard time fulfilling your financial obligations in the past, you can only get a loan from specialists such as lending companies that cater to clients with bad credit.
Before applying for a loan, review your credit rating first. If you have bad credit, look for lending companies that extend bad credit loans to make sure that you could get the cash that you badly need.
Nowadays, getting a quick loan is quite easy. You can submit your application and have the funds in a few hours interval. What can take long and steep is repaying the amount that you borrowed if you have no other sources of income. No matter how tight your budget, though, making timely payments would improve your credit score and allow you to borrow significant amounts at a low-interest rate and reasonable repayment terms. Since paying your monthly loan amortisation is to your best interest, here are some ways to make sure that you can pay your loan in full.
Borrow What You Only Need
How much money you badly need at the moment? If you only need £300, then apply for that amount only. Borrowing more would mean a bigger monthly instalment and a higher interest rate. Having cash at hand can give you a liberating feeling, but having money at hand might tempt you to spend on trivial things. Remember that you must repay a debt. Make sure that you can afford to pay your monthly due regularly and without fail. Always consider your income and your expenses. Your monthly loan payment must not be more than your income t yin order to have money left to pay your debt.
Take Austerity Measures
If you want to build your credit rating and be able to enjoy better deals when you take a loan in the future, you must take some austerity measures. If you can walk t your workplace, take the exercise and save on transportation. Have you been buying things that you do not need? Stop this habit and keep the money for your loan repayment. Getting into debt can change your lifestyle, but you would find out soon that your sacrifices are worth it.
Find Ways to Have Extra Income
If you have a hard time making ends meet, why not find ways to earn an extra income? Use your unique skills and talent. You can find a part-time job after your work hours, or bake cakes and cookies to sell to your friends and colleagues or online. If you are computer savvy and know programming, writing, or encoding, you can apply to online jobs. You would have more than enough earnings to pay your loan and to spend for your other needs.
Make Loan Payments a Priority
Every payday set aside an amount for your loan payment and never touch it. Spend only for food, utility bills, and transportation. Weekend movies, family outings, and shopping could wait until your situation improves. Every time you have an extra income, double your payment so that you can pay up your loan as soon as possible.
Save for Emergencies
Set aside small amounts for your next emergency. Taking another loan while you have not yet paid up the last one may not be possible. Saving a few dollars peach each payday can make a big difference when you are in dire need.
Paying for a loan that you can hardly afford takes self-discipline and determination. But once you have paid up all, you would feel good about yourself and your lender would learn to trust and respect you. The next time you need cash, retaking a loan would be quick.
The fact that we live in a world based on consumerism means that we always need to have money on hand, in order to either pay products or services. Unfortunately, this is easier said than done, especially when considering the fact that prices are constantly on the rise.
Credit cards have been the go-to solution for many individuals for over two decades. However, the fast development of the online medium has created alternatives in the form of online lending services. These are offered by companies that function similarly to banks, with a few exceptions that can be advantageous to borrowers. Here is what you need to know in order to determine which one is the better fit for your needs:
How Do Credit Cards Work? Pros and Cons
Credit cards are essentially lines of credit that have low borrowing limits. If you own a business card but do not use it, you will only have to pay a small administration fee. However, if you pay for products or services using it, you will have to pay interest for what you borrow, provided that you do not return the money by the end of the month.
Borrow money whenever you need it – Credit cards can be used to pay for anything from electronic equipment to medical procedures. This gives you a fast way to borrow money in case of an emergency;
They can be affordable – If you make a habit of only borrowing what you can repay until the end of the month and do so religiously, you will be able to avoid having to pay interest, leaving you with only paying the affordable administration fee;
Paying for products and services can be advantageous – Many retailers have cashback offers for those who purchase their products and services using credit cards;
Using your credit card can damage your credit rating – Whenever you pay for something using your credit card, it is considered that you borrow money from the lender. If you use your credit card on a regular basis, your credit rating may drop;
Having an unpaid credit card can make it difficult to get loans – Most lenders will look at your credit utilisation ratio whenever you apply for a loan. This means that they will analyse how much you use of the money that is available to you through your credit card;
How Do Online Lending Services Work? Pros and Cons
Online lending services are somewhat new, but they are extremely popular. This is mainly because most of them do not report the loans that they give out to credit registers. In other words, you are able to borrow money without worrying that it will affect your credit rating.
Fast short-term loans – If you only need to borrow small amounts of money, you may be eligible for a next-day loan, enabling you to get the money in under 24 hours;
They do not affect your credit rating – Most online lenders do not report the loan that they offer, and they do not perform credit checks. This means that you are able to borrow money without having the loan affect your credit rating and you can do so even if you have a low credit score;
Higher interest rates – Online loans, especially next-day ones have higher rates than what you would be offered at a bank;
Lower borrowing limits – You will only be able to borrow up to £1,500 without having to go through the regular bureaucratic channels;
Which Is Better of the Two?
Both credit cards and online lending services are useful in their own right. However, each is designed for a different type of situation. The former is useful if you need money on a daily or weekly basis while the latter is a better option if you need larger sums of money that you can repay fast. In other words, credit cards are better for small purchases such as buying groceries, paying for transportation and bills, while online loans are only practical if you want or need to buy expensive products.
You might have some savings set aside for contingencies, but would it be enough to cover for all the expenses you might incur? For example, undergoing major surgery is quite expensive. What if all your savings cannot cover the cost? Your quickest solution is to take a loan. No one knows when problems that involve money would strike, and you must realise that there would come a time when you would have to borrow money no matter how you hate the idea of having debt. When this time comes, you would be thankful that you have successfully built an excellent credit rating.
Here are five ways to ensure that your credit rating would qualify for any type of loans in the UK.
Review Our Credit Score From Time to Time
Even if you have no plans yet to apply for a loan, find time to check your credit rating. Several agencies in the UK collect credit record of individuals that have taken a loan or used a credit card. You can request for your credit record from the agency and check all entries. Beware of erroneous listings such as the dates when you made payments.
A wrong payment date could make you appear like you are always late in paying your bills, which could result in a low credit rating. If you see any discrepancies, contact the company where you got the credit and ask for corrections. Please do not wait for the day when you badly need cash to review your credit score because rectifying them can take time.
Make Sure That You Register As a Voter
Even if you do not vote, make sure that your name is on the electoral list. Lenders use the information from the registry to verify your identity and address. If you have not yet signed up, do so as soon as you can just in case you need to get a loan in the future.
Take a Loan or Credit Card to Have Credit Record
You might be a person that feels uncomfortable having debts. Having no credit record at all can slow down your loan application when the time comes for you borrow money because lenders usually check your credit history.
Do Not Apply to Several Lending Institutions
When you submit a loan application to a lending company, the activity will show on our credit history. When several loan applications appear on your credit record, the lender might think that you already have multiple loans or you have not paid all those loans. You could earn a deficient score because of the numerous loan applications that you sent to different lenders.
Pay on Due Dates
Make sure to pay your loan amortisation on time to earn points for your credit score resulting in excellent credit rating.
Taking into consideration all these things would help you qualify for any loans you want to consider whenever you need additional financial resources and borrowing is the only option you have.