Did you get into financial difficulty during 2015? Perhaps you spent more money than you earned and had to rely upon credit cards and overdrafts to get by when it became clear that you weren’t going to meet all of your financial obligations? Perhaps your circumstances changed and you found that you weren’t earning as much as you had expected.
Or perhaps you are planning something big in 2016: a new car, an amazing holiday somewhere special or some home improvements. Whatever you are planning for the New Year, record low interest rates and the rapid increase in the number of alternative lenders means that there are now more reasons than ever to consider taking out a personal loan.
If you are planning to make some changes this year, you may be tempted to hit your credit card if you have one. Some might be considering simply running up an overdraft with the bank.
But before taking the plunge, it may be worth considering a personal loan to fund your purchase or to consolidate some of your existing debts. Both credit cards and bank overdrafts usually come with substantially higher interest charges (once any introductory periods have expired) while many have other charges including monthly fees and balance transfer administration charges. You should also consider that if you are planning to borrow money using either method, if you underestimate how much you need and go over your limit without a prior arrangement, the charges that you are likely to incur could be eye watering.
Personal loans on the other hand are an excellent alternative if you need to borrow a larger sum of money. While they don’t give you the same instant access to funds, it’s likely that you will end up paying less in interest over the lifetime of the loan than with a credit card or overdraft and you’ll have a clear repayment agreement giving you the ability to plan your finances for months, even years, ahead.
Stabilise your finances
Personal loans are also a much better alternative for people needing to stabilise their finances with an injection of cash into their bank accounts. While it is possible to withdraw cash on a credit card and pay it into your account, this usually comes with extra charges called cash advance fees which may void any introductory zero-rate offer that the card came with. The amounts that you can withdraw in cash are also fairly small – sometimes as little as 200 a day – and you may have to pay a higher rate of interest on the cash advance than other spending on the card.
With a personal loan, you will know in advance what rate of interest you will have to pay, the length of the repayment schedule and the total amount that you will have to pay back. While not as fast as using a credit card, most personal loans can be in your bank account within hours of approval. A personal loan will also give you much more flexibility when it comes to large expenditure such as home improvements. If you are planning to use tradesmen, builders or other professionals to carry out the work, it’s unlikely that you will be able to pay them with a credit card. With a personal loan, however, the money is in your bank account so you can simply write a cheque.
Deal with your financial hangover
If 2015 was not the best year and you are finding that you’ve got a major financial hangover in 2016, you might be considering consolidating your debts to give you a fresh start. Personal loans are an excellent way of grouping together a number of debts – particularly on credit cards – and benefitting from a lower rate of interest. With a loan, you simply pay off your existing card balances from your bank account and then just pay a simple monthly amount. You will know exactly how much interest you are paying – which is likely to be lower than most credit cards. And if you do use the loan to clear all of your balances, you will also only have one single monthly repayment to make.
Personal loans are remarkably simple and don’t usually require the applicant to supply the lender with large amounts of documentation. For instance, if you apply for funds on portals like FatcatLoans (https://www.fatcatloans.ca/), you can get access to multiple lenders in just a few seconds. This in turn can give you the best chance of instant loan approval. Going this route, you may not have to submit a substantial number of documents. Additionally, when you apply for a personal loan, you won’t have to put up security or a guarantor, which you may have to do with other types of lending or with a mortgage or other secured loan.
In recent years, there has been a huge increase in the number of financial organisations offering personal loans. This increased competition has been a boon for the borrower – lower interest rates, higher capital sums and few, if any, hidden charges like early repayment penalties. If you are considering borrowing money this year, then it’s a very good idea to shop around because you may be able to negotiate a lower interest rate with one loan compared with another.
While the capital amounts available are often smaller than with secured or guarantor loans, you can typically borrow between 500 and 12,000 with a personal loan without having to provide any security.
As with any other form of credit, it’s important that you ensure that you will be able to continue to make the repayments even if your circumstances change. You should never take on more debt that you actually need despite the temptation to borrow the largest amount possible to go on a spending spree.
Article provided by Mike James, an independent content writer in the financial sector – working together a selection of companies including the technology-led finance broker Solution Loans, who were consulted over the information in this piece.