Saturday, 26 Sep 2020

What Other Options Do I Have When I Need Credit?

The bank of mum and dad may have closed for business or you may have been rejected for a credit card. Whatever your reason for seeking credit, there are ways to access funds by other means. One of those is sourcing a loan – but not all cheap loans are the same.

What Are the Different Types of Cheap Loans?

Not all loans are the same in the way they are repaid or what they are usually used for. For example, if you were to buy an item of furniture, or a house to put it in, this would require two different types of loans due to the amount that needs to be borrowed. There are three main types of cheap loans:

  1. Personal loans: these are often used for smaller purchases and paid back in one instalment. They benefit many people because they do not require collateral, i.e. an asset to be claimed on from creditors if you fail to make the repayment.
  2. Instalment loans: these are similar to personal loans, but repayments are negotiated over a longer period with frequent instalments instead of paying back in one sum.
  3. Home loans: these are different from mortgages on paper but work in a similar way. They allow you to buy a property, but the creditor can repossess your property if you fail to make repayments on time.

If you want more further details on what are the cheapest loan types, consult this detailed loan discussion by Wonga.

How to Find a Cheap Loan?

To find a cheap loan you can speak with friends who have used loan services before or look online. Due to the spread of the internet, there are so many companies offering loans online. You should look at the interest rates of the loan and time period of repayments to judge if the loan fits your financial capability.

However, it is best to go with recognisable names and always only apply for a loan to companies who are regulated by the overseeing body in their country. As examples, in the UK this is the Financial Conduct Authority (FCA), whereas in South Africa it is the National Credit Regulator (NCR). This ensures that their practices are fair and in line with financial regulations.

What Not to Do!

If you do manage to find a great loan but are rejected for credit, you should not go on applying to lots of other loans. Applying for a loan leaves a mark on your credit history and frequent applications can be damaging to your overall credit score.

This will cause you to be more likely to be rejected in the future. Instead, build up your credit score and then reapply to a cheap loan that meets your needs.