As the cost of living continues to soar, more and more Brits are heading into debt. Many are turning to loans in order to cover the cost of daily expenses. Over a third (33%) of high income families are now reliant on overdrafts of over £1,000 ñ compared to 15% in 2008.
Whether you need a loan to cover general expenses, university fees, holiday costs or any other reason, here are some useful tips to ensure you get the most out of loan.
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How to get approved
In order to speed up the process and improve your chances of getting a loan approved, you should check your credit rating as well as that of your partner. Their credit rating could affect YOUR credit report. Check the terms and conditions and make sure you follow and understand the guidelines. Be prepared and show the lender that you know what the loan involves.
Knowing your credit score
If you are planning to apply for a market leading loan, check your credit score beforehand. Lenders are only required to offer their ërepresentativeí APR, meaning that if your credit rating is not up to scratch you could be paying more than the low rate you originally applied for. You can improve your credit score by paying by direct debit and never missing a payment. Keep your balance well below your credit limit and close accounts you no longer use.
What to do if you have been rejected
The rate at which UK banks are rejecting loans has rocketed recently so do not worry if your loan has been declined due to the risk/lack of financial security. There could be a number of reasons as to why the bank has rejected your loan, yet the best thing to do if you have been rejected is simply wait a few months. Show that you have a healthy credit profile by managing debt effectively and do not apply for several loans from various lenders.
What type of loan
There are several different types of loans available and it is important to consider exactly what you want from a loan and how you want to re-pay it before making a decision.
Sainsburyís Finance recently reported that one in five of all personal loans are used for home improvement. These can range from £1,000 to over £25,000 and are generally unsecured. This means that none of your possessions are at risk; although lenders are entitled to take legal action if you default on loan repayments.
This type of loan means that it is secured against an asset that you own, typically your home or an item of greater value than the loan. These are low risk loans by the lender and because of this interest rates are lower than unsecured loans.
The amount you can borrow is often higher and repayments can be spread long term. However, if you do not keep up with payments you could lose the asset that you secured the loan against.
Consider your options
If you do not need a large sum of money, a credit card could be a cheaper alternative. Many are currently offering 0% balance transfers and purchases over a lengthy period of time without charging you any interest.
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