Last Resort Loans to Avoid
Last resort loans to avoid can include secured loans and high interest loans that are taken in desperation. The key to successful borrowing is to never borrow more than you can afford to comfortably repay with regards to monthly payments, and always go for the lowest interest rates. Secured loans may give lower rates of interest but they will usually be secured on your property; security gives the lender peace of mind not the borrower.
Never Borrow More than You Can AffordA large number of borrowers have found themselves in serious financial difficulties by stretching their monthly outgoings to the limit. On paper it may seem as if the monthly loan repayments will not be too much of a problem but financial income can change over the course of a long loan period. Loan repayments should never be too much of a financial strain or a burden on your monthly expenditure. If a lender is willing to lend you money you should sit down and calculate whether you can actually afford the repayments, find a better deal elsewhere, or can actually live without this loan.
Last Resort LoansLast resort loans are usually loans taken when all alternative borrowing options have been tried. The problem with last resort loans is that they are usually taken out of desperation and this can sometimes cloud a borrower’s judgement. When loan options are limited many borrowers will simply put the annual percentage rates out of their mind and take what is offered. This can mean saying yes to very high interest rates, long loan repayment periods, and using property as a guarantee.
Loan Points to RememberWhen applying for a loan there are a number of points to remember. Following these points should help you find the best loan as opposed to a last resort loan. Points to remember when looking for a loan will include:
- Undertake research and compare loans to find the best annual percentage rates
- Apply for unsecured rather than secured loans
- Make sure you can comfortably afford monthly payments
- Avoid paying for extras such as payment protection insurance
- Do not take a loan as a last resort to debt problems, this will usually only lead to further financial problems
- Avoid lenders such as no-credit check lenders and payday loans; the interest rate with these lenders will be high
- Never apply for a loan until you have undertaken your research and found the right loan, this will avoid leaving footprints on your credit record
Try to Avoid Secured LoansSome secured loans may look like a good deal if the interest rates and the monthly repayments are low. However, repayments will usually be over a much longer time period than unsecured loans, which is why secured loans are often for larger amounts. You will usually end up paying a lot more back with a long term secured loan than a short term unsecured loan. With secured loans the interest rate can also be variable and change with British base rates; this should be checked before signing any loan contract.
Secured Loans and PropertyThe major issue with secured loans is that unlike unsecured loans the lender will need some form of guarantee. In most cases this means the loan will be secured on property, usually the borrower’s home. This means that the lender can repossess and sell the borrower’s home if problems do occur with the loan. Borrowers may think this is unlikely to occur, but many people have found themselves in financial difficulties due to a change in financial income. The end result could be bankruptcy or the sale of the secured property to repay debts.
Higher Interest Rate LoansOne reason secured loans are popular with people in financial difficulties are that they are simple to obtain. Lenders are much more willing to give credit to people if security is involved, even if the borrower has a bad credit record. Borrowers that do have bad credit records and have no other options than to apply for last resort loans can find themselves looking at exorbitant interest rates. It’s a sad fact that those that can least afford it will be charged the most with regards to interest rates and loans.
Borrowing responsibly and avoiding bad debt means avoiding last resort loans. These loans may look like an attractive option to ease the financial strain in the short term but they will be a big commitment financially. Borrowers should always look for other options to last resort loans and should carefully research their financial options before committing to any loan.