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Top reasons that families take a loan – is it harder now than ever before?

Top reasons that families take a loan

Top reasons that families take a loan

Most British families have to opt for a loan at some time or the other in their lifetime, whether it is for a mortgage or to spend on an expensive purchase. There are a variety of reasons for taking out a loan.

Traditionally, around 10 to 20 years ago, loans were easy to get hold of. Companies didn’t conduct much of a credit check, and Brits could get away with borrowing a lot. This is to their own detriment though, as they of course had to repay the loan, often with high interest rates.

Nowadays, it can prove more difficult to obtain a loan. This is because:

  1. Loan companies can enquire about the purpose of the loan that you have applied for, especially if it is for a large sum of money. They can easily decline your application.
  2. For very large sums, assets need to be given as collateral, so that the loan provider has the ability to recover the sum lent, in case of the borrower defaulting on payment.
  3. Thorough credit checks are conducted. Many applicants don’t know how to improve their credit scores.
  4. Of course, there is also the problem with the actual application process. The problem with taking a loan from a bank is that it is a lengthy process that involves a lot of paperwork. In a sudden financial emergency when you fall short of cash for medical bills or for utility expenses, you don’t have time to wait for an answer and fill in more paperwork.

However, British families do have more options than ever before when it comes to the kinds of loans they can obtain.

Changes in the types of loans we can get

One newer option for Brits is to choose a short term or payday loan. These are processed swiftly and are very convenient to use, even if the borrower has a less than attractive credit rating. The only drawback is that they are for small amounts £100-£400 generally and must be paid back within the stipulated time period, on the next payday to avoid being penalised. These have become increasingly popular, and all the more competitive, with rates like 993% APR from cash loan provider Wizzcash.com, a reputed payday loan company. Families might need sudden mechanical work on their car, and a payday loan would suit this purpose.

You can also choose credit cards as a way of borrowing money. You can often get high funds on a credit card, up to £10,000. To get this, you must be sure that you can repay all the monthly repayments as the interest rates can quickly creep up on you. You can also have the option to shift your debt onto a 0% credit card whilst you accrue more money, which is a savvy option for many people looking to handle their debt.

Main reasons of opting for a loan

Debt Consolidation: One of the major reasons families opt for a loan is due to debt consolidation.  The benefit is through one single loan you can pay off any existing loans, which are charging you a high rate of interest and this will save you a lot of money in the long term.  It also helps to simplify the process which enables you to deal with repayment of just a single loan, instead of juggling with multiple payments all though the month – perfect for busy families with a lot going on. When you feel that you are being overwhelmed by debt repayments you can speak to a financial advisor about the possibility of a debt consolidation scheme.

Home Renovations: This is another reason that British families apply for a loan. Home improvement or remodeling the home is mostly considered to be a better option than selling and buying in a volatile UK property market.  It is considered more cost-effective to renovate an existing property, rather than invest in a new home at a time when mortgage and interest rates are soaring. There are also homeowners who have their equity invested in their property, so it makes more sense to get a secured loan and reinvest it in the existing property. It will also improve the value of the property and is considered to be one of the more prudent decisions to make with property.

Car finance: Buying a new car can be an expensive affair and most families, especially growing families, do not have extra cash to shell out to buy a new vehicle. New vehicles can be very expensive and choosing a car finance package from the dealer will cost you much more in terms of the deposit and APRs. It is wiser to go in for a bank loan which will offer you a much better deal with lower APRs and will be a much more economical decision in the long term. Of course, you might find one of those valued 0% car finance deals somewhere which could be a good option.

Travel: Going on a holiday to a foreign country does not come cheap but families want to provide their children with great memories and experiences.  Unsecured loans are the best option to opt for when families don’t have the money in their savings accounts. Of course an applicant needs to carefully read and compare the interest rates and repayment schedule before making his decision.

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