Applying for a loan? Check this out

In this day and age, people find themselves having to tend to a plethora of expenses, including education, medical, recreational, etc. Medical and educational costs, in particular, are exorbitant today, which is primarily why people do not have much choice but to turn to loans. If you find yourself in this situation and want to apply for a loan, this article is for you. 

What should you do when you apply for a loan?

You should avoid applying for a loan unless you have a legitimate reason. You should also avoid loans if you have a bad credit history and do not know how to build credit. However, if you have a few significant purchases in the pipeline that you want to finance, a loan could help you. Here are a few examples of significant investments: 

• Consolidating your debt
• Purchasing a house
• Extravagant holiday trips or vacations
• Getting a new vehicle
• Taking care of medical costs
• Substantial miscellaneous expenses
• Paying for education
• Investing in your business

Loan Index

Which documents do you need to avail a loan?

To apply for a loan, you primarily need documents that serve as identity and address proof. You can use the following documents as proof of identity:

• Your driver’s license
• Biometric Residence Permit
• Your passport

And you can use these documents as proof of location: 

• Driver’s license
• HMRC Tax Notification
• One of your latest utility bills
• Your benefits entitlement letter
• A UK credit union statement
• Your current tenancy agreement issued by a solicitor

However, you cannot use the same document for both identity and address proof. 

What types of loans can you avail?

There are mainly two types of loans – Unsecured loans and Secured loans. 

Unsecured Loans

Unsecured loans are loans that you may avail without having to pledge assets as collateral. Pledging collateral entails placing an asset on the line to secure the loan that you are after. 

With unsecured loans, there is no need to place assets like your house or vehicle on the line if you are unable to repay the loans. However, your chances of getting approved for a loan like this depend on your income and credit history. 

Unsecured loans have a few vital benefits that make them a viable option for you. Here are a couple of them: 

• Easy-to-follow application process. You should have no problem applying for these loans. You can apply for them from your house and not worry about having to visit the office to do so. You can expect to be notified of your application status 24 hours after your submission. As mentioned, your chances of getting approved will depend on your source of income and credit score. 
• There is no need to pledge collateral. As mentioned, you do not need to pledge collateral, which is primarily why unsecured loans are immensely popular. If you are unable to make timely repayments, your bank cannot claim your assets as compensation for the due loan amount. 

Unsecured loans also have their fair share of demerits. Here are a couple: 

• Higher Interest Rates. Since unsecured loans do not require you to pledge assets as collateral, banks generally charge relatively higher-interest rates of interest to compensate. In a nutshell, you will need to make more repayments than you would for secured loans. 
• They are not easy to avail. As you may have guessed, it is not easy to avail unsecured loans. You have to show your bank that you have a regular and stable source of income and an excellent credit score. 

Secured Loans

As you may have gathered by now, secured loans are protected by collateral. Your lender will hold the deed until you make the loan repayments in full. Secure loans are one of the most common ways to avail loans. You will have to place an asset to secure the loan. If you cannot pay the loan amount, the lender will seize the asset to recover the loan amount. 

Secured loans have their advantages and disadvantages. Here are a couple of advantages: 

• You may lower your monthly repayments and take care of them over a longer tenure. While this is helpful in the short term, you will be required to make overall higher repayments as the interest builds up over time. 
• Keep in mind that you can make use of your secured loan for just about any expense, as long as it is legal. However, keep in mind that you could have usage restrictions if you decide to raise extra funds through a remortgage. 

Here are a few disadvantages of secured loans: 

• Potentially losing your house is the primary downside to applying for secured loans. If you miss the repayments on your loan, you run the risk of forfeiting your house or whatever you’ve pledged as collateral. 
• Secured loans are known to come with relatively lower interest rates. However, they are variable. Personal loans, however, have fixed rates. As you may have guessed, loans with variable interest rates could go up at any point. 

Apply for a loan in the UK with Bad Credit

Getting a loan with poor credit is no easy feat. You will be severely limited in your options as you look for the loan that you think suits you the best. While you figure out how to build your credit score, you could look for loans for poor credit at CreditSpring. 

These loans may serve your current needs. However, keep in mind that they come at relatively higher interest rates. They cost more but are easier to get approved for. Consider applying for a bad credit loan and making timely repayments to simultaneously take care of your finances and boost your credit score.