Looking for a Loan in the UK? Here’s What you Need to Know
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Finding and deciding on the right loan in the UK can be challenging, especially considering how you ought to take multiple factors into account. These include why you need a loan, the loan amount, how much time you need to repay the loan, and so forth.
Why get a Loan in the UK?
People apply for loans for a variety of reasons. Here are some of the critical reasons for the widespread use of loans:
- Purchasing a vehicle
- Purchasing a house
- Consolidation of debt
- Financing a significant purchase
- Holiday or vacation
- House renovations
- Kickstarting a business
Which Documents do you need to get a loan in the UK?
Banks are, fundamentally, looking for documents that act as proof of your identity and location. Here are the documents you can submit in order to apply for a loan in the UK.
- Driver’s license
- Residence Permit
- Utility bills
- UK credit union statement
- Current tenancy agreement (if any)
However, note that you may not use the same document as proof of your identity as well as your address.
Types of Loans in the UK to Consider applying for
There are essentially two types of loans: Unsecure and Secure loans.
These are loans that you can apply for without the need for collateral. Pledging collateral refers to putting an asset on the line as a way to secure the loan you need.
Unsecured loans do not require you to risk significant assets like your house or car, or anything else to compensate for not being able to repay the loan. However, they do require you to have a regular and stable source of income and an excellent credit history. Here are a couple of advantages of applying for an unsecured loan in the UK.
- Applying for an unsecured loan in the UK is a breeze. It can be done online instead of having to visit the office branches physically. Once you apply for a loan, you will be notified of your application status 24 hours after you apply for it.
- The fact that unsecured loans do not need you to pledge collateral is a significant point in their favor. If you are unable to make repayments on time due to financial hardship or any other reason, the banks are not authorized to claim your house or your vehicle or any other significant assets you may have, as compensation.
Seeing how the average joe has a ton of expenses, it is easy to fall back on some, which is why personal loans are essential.
As you look for your ideal personal loan in the UK, you ought to consider the following factors: loan amount, interest rate, repayment period, and fees. You can approach banks, credit unions, and online lenders.
Banks allow you to apply for a loan in the UK in person but may have relatively strict requirements for loan approval. Credit unions typically require you to be a member before they hand out loans. They are also known to cater to people who have subpar credit. Online lenders generally have a simple and straightforward approval process. However, they may be the most expensive option of the three.
Bad Credit Loans
A bad credit loan in the UK is an unsecured loan designed for people who have a poor credit history. Bad credit score loans usually come at a relatively higher interest rate, which makes these an expensive loan option.
The average Annual Percentage Rate (APR) on bad credit loans is 49%. APR refers to the cost of borrowing a loan amount over 12 months. It includes additional fees and interest on the loan. Bad Credit Loans boast the following advantages:
- They are relatively more likely to be approved compared to regular personal loans.
- These loans also allow you to improve your credit score if you manage to repay the loan in time.
- Finally, the application process to avail these loans is streamlined.
However, Bad Credit Loans have the following disadvantages:
- Since lenders are essentially taking a big risk by handing out loans to people with bad credit history, these loans come at relatively much higher interest rates.
- Having a mediocre credit score can make it difficult for you to get the lenders and loan terms you want.
- As you may have gathered, these loans are not ideal in the long-run.
Secured loans require you to pledge collateral. Borrowers tend to go for secured loans for significant amounts. However, as mentioned earlier, you would have to put your house or vehicle or another asset on the line for compensation if you are unable to repay the loan in time.
Here are a couple of advantages of secured loans:
- Secured loans allow you to lower your monthly repayments and spread them over a longer loan term. Do note that you will have to make higher repayments overall due to the accumulation of interest.
- You can use a secured loan in the UK for almost any purpose as long as it is legal.
However, secured loans also have disadvantages that ought to be aware of: Borrowers are mainly apprehensive about secured loans because you have to pledge collateral.
Unlike unsecured loans, secured loans come at relatively lower interest rates. However, they are variable, which is not the case with unsecured loans. Variable interest rates may affect you negatively in the long run.