Individuals tend to become involved in a multitude of expenses in today’s modern world, some of which are medical, academic, property and so on. Such expenses are arguably the most expensive, which is presumably why individuals prefer to rely on loans to remedy the situation.
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Apply for a loan
Don’t opt for loans unless you need real money. You should always consider loans as your last resort for financial hardship. You should also stay away from loans if you have a bad credit score and history.
You also have something like a loan calculator that helps you calculate the amount you owe the bank.
So if you have taken out a loan, you can use this platform to calculate your monthly costs.
That said, there are certain things you may need money for, it could be for any reason.
Here is a list of reasons people get loans
- Invest in a business
- Debt Consolidation
- Buy a house
- Purchase of a new car
- To handle your medical bills
- Significantly miscellaneous expenses
- Academic Fees
- holidays
If you are taking out a loan in the UK, you will be required to provide certain documentation that will serve as proof of your age and residence.
Here are the documents you can use as your ID
- A driver’s license
- A passport
- Biometric residence permit
These are the documents you use as your proof of residence
- HMRC tax notification letter
- Statement from the UK credit institution
- Last energy bill
- A driver’s license
However, keep in mind that you do not have the option to use one document as proof of residence and identity.
See also: 7 Mistakes to Avoid When Applying for a Business Loan
Types of Loans
There are many types of loans that an individual can acquire but there are primarily two types of loans namely unsecured and secured loans.
Unsecured Loans
When it comes to unsecured loans, you can obtain these types of loans without having to provide anything as collateral to the banking company. This means you don’t have to put aside valuable properties against the loan you get.
When it comes to unsecured loans, the main determining factor as to whether you get a loan or not is your credit score.
While you don’t need collateral for an unsecured loan, you do need a steady source of income.
Here are some of the benefits you can get from unsecured loans:
- Applying for such loans is a simple process that can be done from home, you don’t need to go to a bank for the same purpose. After you have submitted the application for a loan, you will receive a status update about this after 24 hours. As mentioned earlier, the chances of getting an unsecured loan are only great if you have a good credit score and a steady income.
- By now you understood that you do not have to provide collateral against your loan, this is exactly why unsecured loans are popular with people. If you do not pay on time, the financial institutions will not take away your personal belongings.
But just as every coin has two sides, it also has two sides. Here are a few drawbacks of unsecured loans.
- The very fact that you don’t have to provide collateral is why banking companies charge you higher interest rates. This is mainly to hedge the risk they run. Loans with a higher interest rate can cause problems during the repayment period.
- Unsecured loans may be easy to apply for, but getting the application approved is a whole different game. This mainly depends on the credit score and the job you have.
Secured Loans
As you would have guessed they are the exact opposite of unsecured loans, these loans require you to place valuable asset as collateral against the loan you are obtaining. This means that if you do not repay the loan, you will have to part with the valuable asset that was offered as collateral.
And just like unsecured loans, secured loans come with a host of pros and cons
Here are some of the benefits:
- You have the choice to reduce the repayment costs and pay them over a longer period of time. While this will benefit you in the short term, you will have to make significantly higher repayments as interest will increase over the period.
- You can use a secured loan to cover almost all costs, as long as it is legal. However, if you plan to raise more money through a new mortgage, you may have usage restrictions.
Here are some of the drawbacks of secured loans
- As you know, you may be able to forfeit your home or other properties that you list as leverage. This is the main drawback of opting for a secured loan. In other words, you shouldn’t risk missing out on your loan or paying it late.
- Secured loans usually have a lower interest rate. But here’s the thing, these interest rates also vary from time to time. The interest rate could skyrocket at any time, you should keep this factor in mind when opting for a secured loan.
Overview
These are the two main types of loans that one can get, there are several other types of loans under secured and unsecured loans that people can opt for. For example, people can opt for payday loans, business loans, new loans and much more.
So make sure you read carefully about the type of loan you want, and then proceed to apply for it
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