Borrowing money is not a cinch whether you need it to tide over during emergencies or you need it for a planned expense. Though various lenders are out there to lend you money, you will have to meet the eligibility criteria.
A good credit score is a must to get money at affordable interest rates, but a few lenders do not mind signing off on it despite a less-than-perfect credit report. You need to be very careful while borrowing money.
Small loans are notorious for trapping you in the cycle of debt, but the fact is that you do not borrow money sensibly. A rule of thumb says that you should take out a loan only when necessary and you can pay it back on time.
Whether you borrow a small amount of money or a large amount, you are to repay the debt on time. Otherwise, late payment fees will be added and interest will accrue.
Mistakes that you must avoid at the time of borrowing
Here are some of the mistakes that you should avoid at the time of applying for a loan:
- Not assessing your repaying capacity
Though a lender is responsible for taking your repaying capacity under advisement, you cannot just bank on the decision of the lender. The bill is in your court after the approval of the loan, so make sure that you will not struggle to manage payments.
Even if you are to pay down the debt in instalments, you are to pay interest on top of what you borrow. This is an additional expense, so you should take a hard look at your bank statement to see if you can keep up with payments along with your other monthly expenses.
Use an online loan calculator to check how much it would cost you if you borrowed a particular sum of money. The estimation will help you know whether your budget has the wiggle room for this expense, not to mention the actual cost would be a bit higher due to processing, upfront and monthly fees.
- Not researching the market
There are various lenders providing the same kinds of loans. Interest rates may vary from lender to lender because each lender follows a different fee system. Some lenders may charge monthly fees, while others do not. Likewise, there are some lenders that charge early repayment fees while others do not.
Before filling in the loan application, you should carefully research to pick a lender that lends you money at the best possible interest rates. If your credit score is bad, it becomes more important to examine the interest rates lenders charge.
It is quite tough to get to know the actual interest rate as it depends on your credit score and repaying capacity. A lender can know only when you apply for a loan, but you can get the estimated one by visiting their official websites and talking to their customer support team.
Finding the perfect lender is more important if you need a very short-term loan, like a payday loan with high acceptance from a direct lender. This is because some accept payments in weekly instalments while others in a lump sum.
- Applying to a lender that does not match your profile
As most of the lenders advertise that they can accept applications from bad credit people, you think that you are completely suitable to the eligibility criteria. The bad credit score range falls between 561 and 720, according to Experian.
Because a lender accepts applications with bad credit ratings, it does not mean that you can qualify for the loan even if your credit score is 561. Some lenders are unlikely to accept applications with less than 600 credit points, so you should figure out if you meet the lending criteria before applying for the loan.
Otherwise, you will lose your credit points. Do not forget that a lender needs to run a hard credit check that leaves search footprints on your credit report. Each time an inquiry will show up on your credit file, and each inquiry will pull five points. This will quickly bring your score down.
- Avoid applying to many lenders at the same time
When you are not sure about the approval from a lender, you apply to as many lenders as possible. Because each lender will make hard inquiries, it will take a toll on your credit points. Instead, you should wait for the decision from a lender.
If you are turned down, try to apply to another lender. However, you should still put some gaps. Otherwise, lenders will think that you are so desperate for the loan that you do not carefully manage your finances. This may result in the rejection of your application.
To conclude
At the time of taking out a loan, you should be very careful about your repaying capacity. Since there are lenders that can accept applications from bad credit rating borrowers as well, it does not mean that it is so easy to get approval.
Even though you get the approval, do not forget to check your repaying capacity. If you find that you cannot pay down the debt on time, you should avoid borrowing. In that case, consider alternatives like borrowing from family or friends or other more affordable small loans.
If you can put off your plans, you should. At the time of taking out small cash loans that are repaid in one go, you often struggle to repay them. As a result, you end p rolling over the loan and eventually end up with too much debt, so be careful.
If you have multiple debts and struggling to repay them, apply for debt consolidation loans for bad credit in the UK and no guarantor. These loans will clear all your dues, so you are left with only this loan to pay off over a period of time.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
