When taking out a loan, you need to be confident that you can afford the repayments over the term of the loan. So, for example, if you are in a temporary job and considering taking out a loan, you should ensure that the term of the loan is less than the number of months remaining on your contract. If you take out a loan over a longer term you may struggle to met your loan payments once your temporary contract comes to an end.
There are lots of types of loans, including:
1. Secured loans (or homeowner loans)
If you own your own home, you will have a bit more choice when it comes to getting a loan. You may be eligible for a secured loan. A secured loan is secured against your property. This means that if you fall behind with your payments, your home could be repossessed.
However, if you’re confident you can afford the repayments on a secured loan, it could help you to manage your financial situation better.
2. Debt consolidation loans
A debt consolidation loan might help you if you’re looking to combine all your debts into one, so it’s easier to keep on top your repayment. Taking out a debt consolidation loan means you’ll be effectively combining your debts into a single debt, which you’ll then repay with single monthly payments, rather than lots of monthly payments to different companies.
You’ll have some flexibility when it comes to how quickly you repay the loan. If you agree to a longer repayment period, each monthly payment you’ll make will be smaller, which could help you take some pressure off your finances (though this could cost you more overall in interest).
Be aware that by taking out a debt consolidation loan, it’s likely you’ll pay more in the long-term. This is because the debt consolidation company will pay off your loans and any penalties for early repayments, and then add their own interest on top. So, whilst you may be able to meet your monthly payments through debt consolidation, in the long-term, you could pay hundreds more for this privilege!
For more information about debt consolidation – Find out more.
3. Short-term loans
If you need money urgently, but know you can pay it back in a few weeks, and don’t want to be paying a loan back years down the line, you might find yourself considering a short-term loan.
Companies that offer these loans charge very high interest rates (up to 4,000%), even when compared with credit card (on average up to 15%), so really consider other options before going for one of these loans. Checking that you are getting all the benefits you are entitled to, or approaching a Credit Union for help may be a better option.
If you do take out a short term loan and don’t pay it off in full on the due date, charges and interest can quickly add up meaning that you end up paying back a lot more than you originally borrowed. If you find that you are regularly running out of money before payday, get advice.
4. Guarantor loans
If you’ve had financial problems in the past, and your credit history has been affected, you may struggle to get a loan. This is where a guarantor loan could help.
A guarantor loan involves getting someone you know and trust (such as your partner or a family member) to take responsibility for your payments, if you can no longer afford them. This makes it more likely that you’ll be accepted for a loan, but you need to be certain that your guarantor can make the payments if you can’t.
Your guarantor also needs to consider whether repaying your loan, if you could no longer afford it, could cause them problems, before agreeing to it.
5. Bad credit loans
If you have had financial problems in the past, missed payments, had a County Court Judgement made against you, or recently entered a professional debt solution, or been bankrupt, your credit rating could be affected. This will make it more difficult to get a loan.
If you are in this situation, you may be able to apply for a bad credit loan. Because you are considered a bigger risk by lenders, any loan you can get will be likely to charge very high interest, and it may be better for you to seek alternative help.