People have to deal with a bunch of expenses in this day and age. Fortunately, you do not have to spend out of your pocket thanks to the availability of loans in the UK. There are different types of loans in the UK to finance just about every expense you may have.
When should you apply for a loan in the UK?
You have to make sure you do not apply for a loan in the UK unless it is necessary. Loans prove to be most useful when used to finance a specific expense or investment. Here are a few scenarios where getting a loan in the UK can work for you:
- Purchasing a new vehicle
- Purchasing a new house
- Consolidating your debt
- Fancy vacations or holiday trips
- Financing your business
- Educational expenses
- Financing medical costs
- Miscellaneous expenses
Which Documents do you need to avail a Loan in the UK
As a rule of thumb, lenders require you to submit documents that serve as identity and address proof if you want to apply for a loan in the UK. These documents will suffice:
- Your driver’s license
- Biometric Residence Permit
- Your passport
You may use the following documents to prove your location of residence:
- Driver’s license
- Recent utility bills
- HMRC Tax Notification
- A UK credit union statement
- Your benefits entitlement letter
- Your current tenancy agreement issued by a solicitor
However, you may not use the same document as proof of your identity as well as your address.
Types of Loans in the UK
There are mainly two types of loans in the UK – Secured loans and unsecured loans.
You may avail unsecured loans without the obligation of pledging collateral. Pledging collateral implies that you will have to put an asset on the line as security for the loan that you will to avail.
You do not have to put significant assets like your house or car on the line on the off-chance that you cannot make the repayment. Instead, lenders of unsecured loans check your income and credit history before approving your application.
Benefits of Unsecured Loans
Unsecured loans have the following advantages to their credit:
Simple and Straightforward Application
As an applicant, you should have no problem applying for these loans online since you do not have to visit the office physically. When you submit your application, you can expect to be notified of its status within 24 hours. You will have to make sure you have an adequate income level and credit score to boost your chances of approval.
No need for collateral
This is the main reason people seem to flock towards unsecured loans. If you are unable to make your repayments on time, you do not have to worry about losing your house, car, or any other significant asset to pay for them.
Demerits of Unsecured Loans
Unsecured loans are undoubtedly popular and for good reason. However, unsecured loans have demerits that you ought to know about.
Higher Interest Rates
While you do not have to pledge collateral, you may have to worry about paying high rates of interest to compensate. This means that you will have to higher repayment than you would for a secured loan.
Difficult to Apply for
Unsecured loans are not all that easy to avail. While the application process is simple, you need to make sure you have a stable source of income and an excellent credit score.
Secured loans are secured by collateral. Hence the name secured loans. Secured loan lenders will require you to pledge collateral to apply for the loan. However, secured loans are commonly used as a way to borrow substantial loan amounts.
Advantages of Secured Loans
- You can choose to lower your monthly repayments and stretch them over a longer loan tenure. Do note that this is a viable short-term solution, but you will have to make a higher overall repayment.
- You can use a secured loan to finance pretty much anything as long as it is legal.
Disadvantages of Secured Loans
The obvious downside is the possibility of losing your house or the asset you put on the line. If you miss repayments on your loan, you are at risk.
Secured loans may not have high-interest rates, but they are variable. However, personal loans tend to have fixed rates. The problem with variable rates is the fact that they could increase at any point.
Applying for a loan in the UK with Bad Credit
It is no secret that applying for a loan with a bad credit score can be difficult. However, you can still do it with the help of a bad credit score loan.
A bad credit loan in the UK can be a useful solution for many borrowers. The downside is that these loans come at relatively high-interest rates. If you have a bad credit history, this may be the way to go. Bad credit loans help you get a loan and simultaneously improve your credit history to put yourself in a position to get future loans approved.
There you have it – a gist of loans in the UK. Keep in mind that improving your credit history is paramount to have your loan applications approved.