I am going to talk about personal loans, we all like to be in control of our finances, we work, we pay our bills each month and we save, whether it is for a holiday, home improvements, new car or just for a rainy day. But at times we find ourselves needing that little bit extra.
We have all heard the horror stories about personal loan companies, with high APR, repayments that seem to go on forever and the huge amount you have to pay back. We have also heard how a small personal loan has ruined families lives. But if you find you need a personal loan and you use properly they can work in your favour.
Credit Cards are an easy way to find yourself in more and more debt, you can start off with one and soon reach your limit, paying off the minimum payment each month, and then you take a second one out and find yourself in twice as much debt. A personal loan can clear your credit cards and you just have one monthly payment to make until the loan is fully repayed.
Another good reason to take out a personal loan from time to time is to improve your credit score. Did you know that low credit score does not only apply to those who have defaulted with loans previously. If you have never borrowed money, never had a credit card, mortgage before then you will not have built up a credit rating, which can go against you in the future. Taking out a small loan and making the repayments each month, will build up your credit report. You can find out more about credit scores here
So what happens when you apply for a personal loan.
Once you have submitted your application form a number of things are taken into account
- Credit Score – this shows your previous record of any financial transactions you have made including repayments, missed payments and settled loans
- Employment History – Any lender needs to be aware of your current employment status and earnings
- Outgoings – This also helps you see how much you have spare after you have covered all your monthly outgoings ie mortgage/rent, bills, food, travel etc.
- Address – Lenders also need to have a record of how long you have lived at your current address, usually they require 3-5 years and will ask for any relevant previous addresses where you have lived.
The above information will give lenders the information they need to see, in order to offer you a loan that you can afford to repay.
You can apply for a short term loan easily these days, with the wonders of the internet. You can choose the amount you want to borrow, and how long you require the loan for. It is very important to provide all the correct information required, you will be asked to provide proof. A lot of the sites you will find online are brokers, which for you will mean that they will have a large pool of lenders and can match you with the best lender for your circumstances.
As you can see from above, taking out a short term loan, is not necessarily a bad thing, they can take pressure of your monthly finances if you are struggling, and can also help improve your credit rating, as long as you use them properly and keep up the repayments each month. One thing I would always advice (this comes from previous banking experience) is to ask if there is any early redemption fees, as you may want to repay the loan early.