Personal loans – The most useful type of loan or a hidden debt trap?

Personal loans are one of the most popular types of loans currently available. They are offered by both banks as well as private lenders and often come with terms and conditions that are considerably better than those of other types of loans.

They are also less restrictive in terms of both eligibility as well as freedom of use. Personal loans do not need to be guaranteed using collateral and most applications are approved in under one week. In most cases, lenders only require that you have an appropriate monthly income and a good credit rating in order to give you a personal loan.

However, what makes personal loans truly attractive is the fact that no restrictions are imposed on what you can do with the money. This offers a lot of freedom but may also tempt you into creating a large amount of debt.

Personal loans can be a blessing in disguise

As with any other type of debt, personal loans are only useful if they are affordable enough to not disturb your financial life. In other words, you need to pay attention to the terms and conditions that you are agreeing too, especially when it comes to the monthly interest that you will have to pay.

Although most personal loans have fixed interest rates, some may come with variable ones. This means that the cost of the loan will vary from one month to another and easily grow, depending on the state of the economy. Generally speaking, you should always try to look for personal loans that have fixed interest rates.

This having been said, the cost of these loans will always depend on your credit score rating. If you have a poor credit history, then the terms and conditions will not be as favourable. Having a bad credit score may mean that banks will attach a higher interest rate to the loan, however, there are also lenders who will set lower limits for how much money you can borrow.

If you are unsure of how much impact your current credit score rating will have on the terms of the loan, you can ask the bank representative to do a soft search credit check. This will not leave a mark on your permanent financial record.

Shop around until you find the best deal

There are hundreds of lenders that you can get a personal loan from. All banks offer them and there are also many private lenders or online lending services that include personal loans among their services. The large number of existing lenders makes it easy to shop around until you find one that offers the terms and conditions that suit you best. In some cases, you may even be able to find online services that will give you a personal loan without performing a credit score check.

Better than the alternatives and infinitely flexible

Generally speaking, personal loans are the best type of loans currently available, provided that you get a good deal from the bank. They come with no restrictions in terms of what you can do with the money, they do not require collateral as long as you borrow relatively small amounts of money, and most have fixed interest rates.

Personal loans are great for debt consolidation, large purchases, or to pay for medical procedures or home improvements.

This having been said, most banks will allow you to get more than one personal loan. This is usually a bad idea. Although a single personal loan is easy to pay off, having to repay two or more at the same time can put a lot of strain on your finances.

Short Term Loan: Features and Types

If you need cash for an emergency and you have no one to help you, taking a small loan is the best option. Short loan, as the term implies, is a loan that comes in small amounts and is payable in less than a year. Borrowers include entrepreneurs, business people, and individuals that need money immediately. Residents of the UK usually take a short term loan to answer their dire need.

Features of a Short Term Loan

A short term loan has several functions. First, borrowers could take only a small amount. Most lenders charge a high annual percentage rate or APR. Third, you do not need to provide security or anything of value that you own to borrow money. Because of the small loan amount and short repayment period, putting up collateral is unnecessary. Last, the repayment period is short, which is usually less than 12 months. However, you must pay the principal and the interest at the end of the repayment period to avoid penalties.

Types of Short Term Loans

There are several types of the short term loan to suit every borrower and their needs as follows:

Payday Loan

A payday loan is a type of short term loan that offers small amounts that the borrower must pay on his next payday. You can borrow up to £200 or more, depending on your capability to pay. You must pay back the principal plus the interest after 30 to 35 days. Applying for a payday loan is the quickest way to get cash for your dire need. The lender requires proof of UK residency, bank details, your income and expenses, and the name of your employer. You would have the funds in your bank account a few hours after the application.

Line of Credit

A range of credit is an amount that a lender would allow you to spend money at a specific limit. You can get the fund as a lump sum or on an instalment basis. If your line of credit for one month is £500, you may spend all or only a partial amount like £300. Once you have paid the money within the month, you would have another line of credit that you can spend. The lender would only charge interest for the amount that you spent and not for the credit line. If you only spend £300 from your £500 credit line, only the £300 would earn interest.

Some lenders may only perform a soft check when deciding applicant eligibility.

No Credit Check Loans

Banks and financing companies conduct a credit check on loan applicants. However, some lenders do not practice credit checks. These agencies have their way of determining the creditworthiness of each applicant. No credit check loans are popular in the UK because even those with bad credit could borrow money.

Logbook Loan

A logbook loan is a credit that you can take using your car as collateral. Some lenders would offer a loan equivalent to 70% of the cash value of your vehicle. If your car is valued at £10,000, you could get a loan of £7000, which you must pay for 12 months or less. However, if you default on your credit, the lender can seize your car and sell it so that you can pay your mortgage. You can pay your loan in advance, and the lender would not penalize you.

Direct Lender Loan

As the term implies, you borrow money directly from the lender. You can avoid some fees because you do not have to pay the costs of a middleman. The lender would also explain clearly the terms of the loan and notify you if there are some changes.

Having access to short term loans is helpful when you are out of cash. Promptly paying back would enhance your credit score so that you can quickly get a loan when the need arises.

Student loans 101 – What you need to know to make the right decision

Student loans can be invaluable for those who have the desire to go to university, however, as good of an idea as they may seem when you’re an undergrad, they can put a lot of pressure on your financial situation.

Generally speaking, getting a student loan isn’t particularly difficult and there are few restrictions when it comes to eligibility. This having been said, as with any type of long-term loan, you should know what you are getting yourself into and the extent of the impact that your debt will have on your financial life. Here are the most important things to keep in mind:

  1. There are two types of student loans that you can choose from

Depending on what bank or lender you choose, you may be presented with several types of loans, each having its particular advantages and disadvantages. Determining which one works best for you is extremely important and will have a serious impact on how you will pay your debt once you finish your studies.

First, there are Income Contingent Loans. These are not repaid through fixed monthly instalments, like a regular loan. Instead, variable amounts of money will be deducted from each of your paychecks. All of this is done through the tax system and the amount of money that you will pay each month will be based on your income. The higher the income, the larger the amount that is deducted from your salary.

The second type of student loan is the Mortgage Style Loan. As the name implies, the repaying this type of loan is done through monthly instalments.

  • There are certain situations that will trigger the repayment plan

You will not have to start repaying the loans immediately after you finish university. Instead, the repayment plan will be triggered by one of three situations:

  • If you get a job – If you are employed, you will have to start diverting a portion of your income towards repaying your student loans;
  • If you are self-employed – Starting a business will still trigger the repayment plan;

Keep in mind that the repayment plan will still be initiated if you find a job overseas or if you move to another country. The exact details of the loan repayment procedure for these situations will be described in the terms and conditions of the agreement. Be sure to read them thoroughly.

  • You only start paying once you earn enough money

In order to make it easier for future graduates, most student loan agreements specify that the repayment starts only once the borrower has a large enough income to support the cost. To put it plainly, you will only have to start paying after your income reaches a certain value.

  • You can repay the loan faster, even if you do not have the required minimum income

It is possible to make additional monthly payments towards repaying your student loan or to pay larger monthly instalments. You can also start making payments, even if your monthly income has not yet reached the repayment plan trigger point.

  • Know what you’ll have to repay

Not all the money that you will get has to be repaid. For example, you will have to repay tuition fee loans, maintenance loans and postgraduate loans. However, all the money that you get through grants and bursaries is yours to keep and use as you see fit.


Student loans are serious long-term commitments that will affect your financial life for up to a decade or more. However, most loans are designed to be both accessible and easy to pay and shouldn’t be feared. It is in the interest of the lenders to get their money back, which means that the terms and conditions of the loans are designed to maximise your ability to repay the money.

How the Unemployed Can Qualify for Short Term Loan

Most people think that only those that have a regular job can borrow money from lending companies. However, there are lending institutions that cater to borrowers that are unemployed but who receive monthly benefits from the government. Besides, lenders would also evaluate the situation of the borrower. Some people that apply for a short term loan have other sources of income that would allow them to make monthly payments for their mortgage.

Here are the unemployed people in the UK who can qualify for any short term loan.

Allowance for People Looking for a Job

People who are actively looking for a job and are capable of working may enjoy this type of benefit and qualify for a short term loan if they have a financial emergency. The profit comes every month until such time that the person is employed. Hence, even if they are still looking for a job, these people can qualify for a short term loan.

Employment and Support Allowance

Citizens of the UK whose capability to work is limited because of a physical defect or illness receive a regular allowance from the government. The benefit arrives monthly. Lending companies are willing to extend credit because the compensation they receive is also a form of income. These government beneficiaries may apply for a payday loan or other types of short term credits.

Income Support

Income support is a financial benefit given to a pregnant woman or a solo parent of a child that is five years old or below. A person that provides care for the elderly or homeless children or orphans also receives income support in the UK.

Things that Lenders Require for Loan Approval of Unemployed Applicants

People who do not have a stable job and rely solely on their benefits must show that they are receiving a regular income that includes the benefits that they collect from the government. If the benefits arrive regularly, lenders would feel confident that you can pay back your loan. Lending companies would have an idea of how much money to lend if they know the number of your monthly benefits.

Lenders would also want to see a borrower’s credit history through which they could see if you have been paying your loans and other debts diligently. An excellent credit history would help you get a quick loan. To clear all records of your debts, pay first a pending loan before you apply for a short term loan for the unemployed.

Make sure to check your credit score. Some agencies give ratings to creditors according to their reliability and capability to pay back a loan. However, if your score is low, you might still get a loan since lending institutions would also consider your source of income. In many instances, even people with a meagre credit score can always borrow money from particular lending institutions.

Fortunately, some lending companies do not ask you to have a guarantor, even if you are unemployed. As long as your unemployment benefits come on time, you could quickly get a loan. You do not have to offer collateral as well. Indeed, short term loans are the easiest to understand, even if you are not working and receiving a salary.

People who are unemployed or living on benefits are prone to become victims of loan sharks because they find it hard to borrow money from formal lending institutions. To save creditors from illegal lenders that charge an exorbitant interest rate, speciality lenders are now open for unemployed borrowers or those depending on their government benefits.

Most of these lending firms accept an online application and process them fast that clients can get their funds a few hours after applying.

When is it a good idea to apply for a personal loan?

Personal loans are becoming increasingly attractive as the requirements for getting them drop. Unlike other types of debt, personal loans do not come with any restrictions in terms of how you can use the money. They also often have lower interest rates than other types of loans, making them the go-to choice for individuals who a moderate amount of money as fast as possible.

This having been said, the amount of freedom that banks and other lenders offer through personal loans can also work against you, in the sense that they may become too attractive. Although these loans are easy to get and do not require that you put up any collateral, they are still serious financial commitments. As a result, applying for one if you have other options, or if you do not need the money for a serious matter can quickly damage your financial life and affect your credit rating.

Only apply for a loan when you need it

There are certain circumstances under which applying for a personal loan is not only preferable but may even be cheaper than if you were to use other banking services. These recommendations may seem restrictive, however, they are meant to help you maintain a good credit rating. They will also allow you to use the money from the loan to its full potential. Here are the situations when getting a personal loan is a good idea:

  • When consolidating credit cards

Although credit cards are easy to use and also tempting, they can be a financial nightmare if you max them out. The situation can get considerably worse if you have multiple credit cards that you use on a daily or weekly basis.

If your credit card debt becomes too expensive, you can get a personal loan and use the money in order to consolidate them. In other words, you will use the money to top off your credit cards, provided that the interest attached to the personal loan is lower than the annual percentage rates on your credit cards.

  • When refinancing student loans

Student loans can be as problematic as they are useful, especially if you end up having to pay a variable interest rate. Although these loans often span over the course of 10 or more years, and the monthly payments are bearable, they can be expensive in the long run. If you are able to negotiate with the bank and get a personal loan that has a monthly interest rate that is lower than that of your student loan, it will be a good refinancing option.­ Overall, you will have to return the same amount of money, but with a lower interest rate, the debt will be put less pressure on your personal finances.

  • If to lower your credit utilisation ratio or pay for a large purchase

Paying for large purchases using a credit card can wreak havoc when it comes to your credit score rating. If you either are close to maxing out your credit cards due to one or more large purchases or want to buy an expensive product, consider using the money from a personal loan instead of a credit card. Getting the money may take longer as the bank will need time to review your request, but the debt will be more affordable in the long run.

  • Pay for an emergency expense

There are no restrictions when it comes to what you can do with the money from a personal loan, however, this does not mean that it is not a serious financial commitment. Even when it comes to this type of loan, banks will not approve your application if you have a low credit score. As a result, try to only take out a personal loan when you absolutely need it. For example, if you need to pay for a medical procedure, treatment, or for repairs done to your home.


Generally speaking, getting a personal loan is a good idea only if you truly need the money. The fact that the banks give them out relatively easily and that the money does not have any spending restrictions attached to it should not encourage you to get personal loans to pay for luxury items or nonessential products.