The idea of availing a loan in the UK is being taken seriously at an ever-increasing pace due to the sheer number of expenses in the digital world.
Medical and education costs make up a significant part of these expenses. Regardless of your financial situation at this point, if you want to play it smart, consider applying for a loan in the UK.
- 1 Applying for a loan in the UK – When Should you do it?
- 2 The Documents You Need to Avail a Loan in the UK
- 3 Types of Loans in the UK
- 4 Getting a loan in the UK with Bad Credit
- 5 Bad Credit Loans
Applying for a loan in the UK – When Should you do it?
Applying for a loan in the UK without a concrete reason can prove to be detrimental. Loans are usually best used to finance significant investments. Here are a few situations that call for a loan in the UK.
- Getting a new vehicle
- Consolidating your debt
- Purchasing a home
- Miscellaneous expenses
- Extravagant holiday trips or vacations
- Building your business
- Taking care of medical costs
- Paying for education
The Documents You Need to Avail a Loan in the UK
In a nutshell, you will need documents that serve as proof of your identity and address to avail a loan in the UK. The following documents are considered as proof of identity:
- Your driver’s license
- Your passport
- Biometric Residence Permit
The following documents can be used to prove your location of residence:
- Driver’s license
- Your benefits entitlement letter
- HMRC Tax Notification
- One of your recent utility bills
- A UK credit union statement
- Your current tenancy agreement issued by a solicitor
Keep in mind that you cannot use the same document as proof of your identity and address.
Types of Loans in the UK
There are primarily two types of loans in the UK – unsecured Loans and secured Loans.
Unsecured loans refer to loans that you can avail without having to pledge collateral. Pledging collateral means that you have to place an asset on the line to secure the loan you want.
Unsecured loans do not need you to place significant assets such as your house or vehicle on the line in case you are unable to make the payments on the loans. Instead, your chances of availing a loan are determined by your income and credit history.
The Main Advantages of Unsecured Loans
Here are some handy features of unsecured loans that can make them a feasible option.
- Simple and Straightforward Application
Applicants can apply for these loans online from the comfort of their homes. Having to visit the offices physically can often prove to be a dealbreaker. Applicants will be notified of their application status within 24 hours after submission. As mentioned earlier, the factors that determine your success with these loans are having a regular source of income and an excellent credit score.
- No Collateral
This is undoubtedly the primary reason unsecured loans are popular. On the off-chance that you are unable to make timely repayments, the banks cannot claim compensation for the loan amount through your assets.
Disadvantages of Unsecured Loans
While unsecured loans may just be what some borrowers are looking for, they have a couple of demerits that make them less than ideal.
- Higher Interest Rates
Given how unsecured loans do not require you to pledge collateral, they generally charge high rates of interest to compensate. In other words, you would have to make a repayment that is higher than the repayment you would make for a secured loan.
- Difficult to Avail
Unsecured loans are not exactly easy to apply for. You need to make sure you have a regular and stable income and a good credit score.
Secured loans are loans that are protected by collateral. You can expect the lender to hold the deed until you repay the loan amount in full. Secure loans happen to be one of the most used ways to borrow significant loan amounts. In a nutshell, pledging collateral helps secure the loan. If you are unable to repay the loan amount, the lender can use your asset to compensate for the loaned amount.
Advantages of Secured Loans
- You have the option to lower your monthly repayments and spread them over a longer tenure. However, you must keep in mind that this can help you in the short term but will require you to pay higher overall repayment as the interest accumulates over a longer tenure.
- You may use a secured loan for just about anything, so long as it is legal. Be sure to note that you may have usage restrictions should you raise extra funds through a remortgage.
Disadvantages of Secured Loans
- Losing your house is, perhaps, the most significant disadvantage of secured loans. Missing payments on your loan can make you lose your house or anything else you have pledged as collateral.
- While secured loans have relatively lower interest rates, they are variable. Personal loans, on the other hand, have fixed rates. The obvious risk with variable rates is that they could increase at any time.
Getting a loan in the UK with Bad Credit
You can expect to have a difficult time getting a loan at an ideal interest rate if your credit score is poor. However, you can still avail one. An example of a loan in the UK that you can get with mediocre credit is a bad credit loan.
Bad Credit Loans
A bad credit loan in the UK may be just what you are looking for. However, be sure to note that these loans generally come at high-interest rates. While they do cost more, they are easier to avail. On the flip side, taking up a bad credit loan in the UK and making prompt repayments can improve your credit score.