Personal loans have quickly become one of the most popular types of debt in the UK. They offer individuals a great way to borrow money without having to worry about collateral. Most lenders do not require that borrowers have a perfect credit score, and some may even give you a loan if you do not have a stable source of income.
This having been said, as with any type of debt, personal loans also come with several disadvantages that you must take into consideration in order to avoid them lowering your credit score. Here are the main things that you need to keep in mind:
What are the main advantages of personal loans?
Personal loans or even guaranteed payday loans will allow you to borrow more money than you could by using a credit card. Where credit cards often have £1000-£3000 limits, the amount of money that you can get through a personal loan is usually calculated according to your credit score and monthly income.
Most lenders will charge interest rates that are considerably lower than those of other types of debt, including credit cards. This is especially true when it comes to large balances.
Repaying a personal loan is done in installments, making it easy to include the expense in your monthly budget. Depending on the terms and conditions of the agreement, you may have to pay a fixed interest rate. This can make it easy to also automate the payments due to the fact that you will have to repay the same amount of money each month.
Flexible in terms of duration and purpose
You are able to choose the period of time during which you will have to repay the loan. This means that you will be able to make the monthly payments as small or as large as you like.
Personal loans are also very flexible in terms of purpose. Unlike other types of debt, the money that you borrow through them can be used for anything that you like, from medical procedures, to vacations.
Know the dangers of personal loans
They can be very expensive :- Not all lenders advertise the interest rate of a loan or its type. If you are not careful, you may be stuck having to pay considerably more than what you initially thought, especially if you get a variable interest rate loan.
They can be restrictive :- Most banks will not give you a personal loan if you either want to borrow less than £1000 or for under one year. This only makes personal loans useful for those looking to borrow large amounts of money, for an extended period of time.
They depend on your credit score :- The interest rate that banks give you often depends on your credit score. The lower the score, the more expensive the personal loan will be.
These are the main things that you have to keep in mind when considering taking out a personal loan. Even if this type of debt is widely used and it often seems safer than others, there are still risks that come attached to it.
Generally speaking, if you figure out how you will repay the money before getting the loan and take precautions to ensure that you won’t miss any monthly payments, it should be enough to keep you out of trouble. Personal loans offer a high degree of financial flexibility, but they can still have a serious impact on your credit score.