There’s only one reason why anyone needs to take out a loan and that’s because they don’t have the money to pay for something they want right now. But behind this simplified explanation, there are many individual needs.
Perhaps you need a new car or furniture. Or maybe you’ve been landed with an unexpected bill, or you need to cash for a rental deposit.
Always use a good price comparison site such as Money Supermarket to search for the right loan and make sure you know about the problems that taking out a loan can create if you don’t do your research properly.
The truth is that not all loans are the same and if you make a mistake when signing up, you could end up in serious financial trouble when it comes to paying back what you owe.
The first thing you’ll have to decide on is whether your loan will be secured or unsecured. Many lenders are more likely to give you a loan that’s secured against your home, especially when you need to borrow a large amount. But if you find yourself unable to keep up the payments on this type of loan, you risk losing your home.
With an unsecured loan, your home won’t be at risk. However certain people, such as the self-employed or those with bad credit history, won’t find it as easy to get one of these.
Even an unsecured loan carries a health warning, because if you get behind with repayments, you’ll be doing huge damage to your credit rating and you’ll face late payment charges into the bargain.
If you only need to borrow a few thousand pounds, you could consider using a credit card. If you use one with an introductory free interest period on balance transfers, you could well get a better deal than taking out a loan.
But, if the interest free offer doesn’t apply to new purchases and if you’re tempted to use your card for these, you could end up paying a lot more than you might have bargained for.
Whilst the interest free offer on some new credit cards sounds great, don’t lose sight of the fact that it will only last a certain amount of time, perhaps as little as six months.
If you haven’t paid back the amount you borrowed by this time, you will then get hit with the regular credit card interest rate applicable to your card and this could be far more than you would have to pay on a regular secured or unsecured loan.
When you need a fast inject of cash in the short term, you could consider taking out what’s known as a payday loan. More than 5 million people in the UK have already done so. They’re usually for fairly small amounts, from £100 to £2000 and like their name suggests, you have to pay back the loan when your next pay cheque comes in.
A payday loan could be just the thing if you need to meet an unexpected bill when you have a shortfall of cash. But these loans have very high interest rates and if you find you can’t pay the money back on the agreed date, the cost of the loan will skyrocket.
If you’re concerned about the impact of not being able to keep up your loan repayments, you could consider taking out payment protection insurance, or PPI.
The idea is that if you’re unable to work because of sickness, or if you lose your job, your PPI policy will cover repayments on mortgages, credit and store cards and loans.
Terms and conditions for PPI policies tend to be fairly strict and most won’t pay out for the first 30 days of cover and exclude some common problems such as stress and back pain. Nevertheless, PPI has given peace of mind and worthwhile cover to many people.
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