In this fast paced life of ours, where we have so much to spend on and so less to save, opting for a loan seems nothing wrong. People have their million reasons for going for a loan but the objective behind this is only one i.e. to get rid of the financial crisis as soon as possible.
Be it for financing your dream house, car or the university fee of your ward. Getting a loan can prove to be nothing sort of miracle in such tight situations.
When you visit a bank or any lender, there are a few things that it will check first, such as your credit score, your income status, and something for security. The security, also known as loan collateral, is needed to make sure that if you are unable to repay the loan, that collateral will lawfully possessed by your lender. One more issue is there that many individuals encounter, which is inability in getting loan approval due to their poor credit history.
The person’s credit score tells about their record in the loan and whether they have performed well. Let’s say you borrowed a loan and could not complete the repayment in time. This lowers your credit score significantly.
Most mainstream lending institutions like banks and credit unions have strict funding regulations on their loan products. Your chances of getting approval will be very low with low credit profile. Still, you have an option to explore i.e. to go for installment loans for bad credit from online lenders in the UK. Now, let us dig deeper into this.
What are installment loans?
Installment loans are provided by the lending firm for the long term. It helps the applicants to pay the debt in small pieces along with interest rate. These loans are perfect for people whose income is not that great or have a bad credit history.
Going for installment loans is much more beneficial than same-day loans online, available on guaranteed approval like payday loans and title loans, where you pay the debt within a week or a month. Well, this is challenging for most people to manage. However, you should have learnt everything about the loan deal before signing the contract.
In this blog, we have explained explicitly 5 things that you should ponder upon when submitting your query for an instalment loan. So, let us discuss those things in detail.
5 things to look out for before applying for an installment loan
Know the repayment term
The thing that really matters the most is your capability to pay off the loan. Therefore, you should be aware of the total loan cost and what will be ideal loan term during which you can pay for it.
With having such long-term instalment loans, you will be able to get rid of every debt in significant time. It is very unlike short-term loans. Perhaps, this is why most individuals prefer these installment loans than any other small loan option in which you have to pay the debt in one lump sum.
Once you familiarise yourself with all the lending norms, you will be in much better condition to evaluate the actual loan cost. Another best thing will be that you do not face any surprises once your loan period kick-off.
- Know the rate of interest
This is something all of you must know: that any lenders are not at charity work. In the end, they will also want to make money, which they do by implying interest on the loan. Therefore, it is important to make sure that you will be able to afford the interest that you will be offered.
Also, the interest rate depends majorly on your credit score. Basically, the lower will be your credit score, the higher will be the rate of the interest. This is why you need a good credit score to get the best offer on the loan.
- Will there be any prepayment fees?
As mentioned above, most lenders make money from the borrowers via the interest. Thus, the longer will be the term happier will be the lender as they will be enjoying the interest for a longer period. However, if in case, you are capable to pay the entire loan prior to the term allocated to you, then chances are there that you may have to pay a prepayment fee as a penalty.
Generally, very rare lenders do that, but you have to be sure from the starting, as you will be saved from any additional charges.
- What about the collateral?
In standard loan options, you have two options to consider. First is secured loan where you will be asked to put an asset to secure the loan amount. Second is unsecured loan in which such provision is missing but borrowers remain on risk-free site.
When it is related to installment loans, most options are available in the UK market in the form of secured loans. If you opt for this, then you will have to make sure proper repayments to not to allow the lender for repossessing your asset. However, your good credit score may help you in not to put any collateral to secure the borrowed sum.
With having a poor credit history, your lender may make mandatory to keep an asset. Alternatively, you can bring a guarantor with decent credit record if you lack an asset to secure the loan.
- Will the payments be amortized or not?
One more vital aspect is whether your installment loans will be amortized or not. It signifies that when a borrower makes a payment, some part of it will go to the interest rate. The remaining part will be for the principal amount.
Without amortized payment, the monthly installment will only go for the interest part. It means that you will be trapped in debt forever. Thus, you must clarify this with your lender in the very beginning before applying for the loan.
Conclusion
Going for installment loans for bad credit can be really fruitful during the time of need. Still, to explore the most of this sort of personal loan, you should have a complete knowledge about the loan and its features. I hope that you have learnt here a lot about these loans.
Anna Johnson has more than 11 years of experience in direct lending industry of the UK. She is the Senior Content Editor at 24cashflow where she is leading a large team of loan experts. During her career, she has helped the loan aspirants to use the particular loans in the best way and improve their financial lives and status.
Anna Johnson is known for her in-depth research of the UK loan marketplace, as she has worked with many major lending firms in her career. During her educational phase, she has done a research on ‘Finance Fundamentals for Growing Business’.
