The value of personal loans in the UK is growing at four times the value of wages according to a 2018 BBC report. Therefore, it is not surprising that 8.3 million people cannot pay off their debts including household bills. Here are the top 10 things you should know about personal loans.
The Interest Rate Is Higher Than What Most People Think
Banks offer you such a low rate of interest on mortgage loans because they will repossess your home if you default on payments. They do not have such assurance when it comes to personal loans. Therefore, banks will charge you a higher rate of interest in this case than you would expect.
Your Credit Score Is Critical When It Comes To Evaluation
Many people believe that they qualify for a personal loan. They feel that only bankruptcy disqualifies individuals from such loans. However, that is not the case. Your credit score determines if you are loanable. The higher your score, the lower the interest rate banks will charge you and the more likely you are to get a loan.
These Loans Are a Short-Term Solution
Receiving a lump sum amount of cash confuses many people. They feel as though the personal loan they received would end all their problems. That is an illusion. Personal loans are inadequate in many cases for long-term projects such as establishing a business or building a home.
Banks Are Not the Only Source for Personal Loans
Usually, people think of banks whenever they hear the word ‘loan.’ Therefore, many of them believe that banks are the only financial institutions that can lend them money. That is not the case. Other financing institutions such as credit unions exist.
Personal Loans Are Ideal For Dealing with Emergencies
People turn to payday lenders for quick access to cash. Some of them use this cash for emergencies. They do not realize that personal loans have better terms than payday lenders do. Avoid this mistake. Go for personal loans when you are dealing with emergencies only or you could create more financial problems for yourself.
Personal Loans Are Ideal For Consolidating Debt
You may have several loans including a student loan and a car loan. Taking a personal loan would help you consolidate these loans and then pay for them at once. That means you will only pay the personal loan, which has a lower rate of interest than the others have.
Personal Loans May Lack Specific Protections in Other Loans
Sometimes, consolidating your outstanding loans and then paying for them with a personal loan may be a bad idea. That is the case if the personal loan does not offer you certain protections. For example, the repayment of a student loan depends on your receipt of income. A personal loan does not.
Transferring Your Personal Loan Is an Excellent Idea in Some Cases
Imagine that your credit card company decides to offer a promotional 0% interest on amounts taken from it. Does holding on to your personal loan make sense when you have a 0% offer on interest? No, it does not. Take this offer and use it to pay for your personal loan.
Personal Loans Have Hidden Charges and Fees
It is worth noting that many of them have these hidden fees and charges, but not all of them do. Therefore, be careful when it comes to selecting a particular personal loan. Make sure that the institution offering it does not have hidden charges and fees attached to it.
Funding Expenses with Personal Loans Is a Bad Idea
Personal loans should be for two things only namely emergencies or development expenditure. Remember, you will pay interest on these loans. Why would you pay interest on something that was avoidable? Why would you also pay interest on it when you did not increase your income with it?