Loans are a form of financial assistance given to you by banks, non-banking financial corporations, individuals or public and private companies. Borrowers have to return the principal amount within a stipulated period. The principal, in addition to some interest, constitutes a buyer’s return payments.
Citizens can avail of several different types of loans from various institutions depending on their needs. There are some necessary details to know before deciding to avail of a loan in the UK.
When Should You Take a Loan?
The need for taking a loan is different for each individual. Some of the most common reasons people avail a loan are as follows.
Buying a new car.
Debt consolidation.
Buying a new home.
Making exorbitant purchases.
Financing vacations to international locations.
Starting businesses.
Renovating houses.
Personal reasons such as event organization or emergencies.
When availing a loan in the UK. There are certain laws to follow for a specific timeline. For example, home loans are usually taken by people still in their working years. Similarly, personal loans or loans for businesses are made by both working and retired people.
There is no right or wrong time for availing of a loan in the UK. Banks and financial corporations offer different interest rates throughout the year. This variation might come into play when you decide the timing of your loan. Most people borrow only when they have either exhausted their savings or do not want to use them all at once. The best way to proceed about borrowing is to weigh all the factors including employment status, need for money, usage of loan and repayment capacity appropriately. Make a well-researched and informed decision before choosing your loan.
Why Did My Loan Application Get Rejected?
In the UK, banks and financial institutions have the freedom to choose their lenders. Institutions use several methods to check an applicant’s background and credit history to determine loan eligibility. If your loan application was rejected, you must be wondering what went wrong. Some of the main reasons borrowers face credit rejection from banks are listed below.
Improper Credit Information
Various discrepancies can occur when your credit report is checked for a loan in the UK. Institutions pay special heed to such disparities. These include incorrect credit information, low credit scores, mistakes on credit reports, previous unsettled loans, etc. The reason your loan was rejected could be based on a similar situation or on something completely different.
Incorrect Information on the Application
Applications can be tedious and cumbersome when applying for a loan. Institutions verify the details on your application more than once, to avoid later miscommunication. If they find any discrepancy between the information you provide on the application and the verified one, they are likely to reject your application. You might have made uninformed or unintentional mistakes while filing your application, resulting in a rejection.
Types of Loans Offered for UK Citizens
- Student Loan
One of the most common loans in the UK are student loans. Meant to support university education, these loans are borrowed by current students. Such loans have to be repaid once the course undertaken with the loan has finished. Some applicants can also choose to pay only the interest while they are studying and pay the principal amount later. If the entire amount is not repaid within 25-30 years, these loans are automatically written off.
- Mortgage Loan
Mortgage refers to housing finance. While applying for a mortgage loan in the UK, residents are expected to deposit a lump sum as a down payment. Most mortgages do not cover the entire cost of the house desired by the borrower. They have to be repaid using monthly interest and principal repayment amounts right after they are taken. These are long term loans and the property for which mortgage is availed works as a security against the loan.
- Credit Card Loan
Credit cards are relatively standard around the world. They are used to make purchases transactions or payments to different people. As you pay an amount using your credit card, you are sent a monthly or a quarterly bill. You can choose to pay the entire bill at once or pay only a portion of it and leave the remaining for later. The remaining amount will invite interest and act as a loan. Banks and lenders also offer loans on easy credit cards, the amount of which you can use instantly to make transactions.
- Overdraft
An overdraft is a loan facility typically offered on current accounts. In an overdraft, you can spend more money than is available in your account at a given time. The lending institution fixes the amount by which you can exceed your account balance. If you exceed this limit, you will have to pay excessively high interest and fees. The overdraft, when within the ceiling, invites a fixed interest rate and is repaid as you deposit money into your account. Exceeded overdrafts are expensive and should be avoided whenever permissible.
- Payday Loan or Short Term Loans
A payday loan in the UK is available to borrowers who require a small amount of money immediately. The amount lent usually does not exceed 1000 to 2000 pounds in case of a payday loan. Institutions that offer payday loans demand the entire repayment along with interest on a fixed date, which is automatically deducted from the account of the borrower. In case the borrower’s account does not have sufficient funds, the lender charges extra fees. The period for payback of such loans is short and interests are usually high due to the risk associated with them.
- Vehicle Loan
If you are planning on buying your dream vehicle, you should consider taking a vehicle loan in the UK. Vehicle loans are usually issued by banks or dealers who partner with private lending institutions. Car loans in the UK require monthly repayments over a fixed tenure and can often involve high-interest rates. The vehicle for which the loan is taken usually acts as collateral or loan security. Vehicle loans are also available on second-hand cars.
