Personal Loan Pitfalls to Avoid In the UK
A personal loan is a form of credit that can help you meet urgent financial needs.
It requires minimal documentation, has quick disbursal, and has lower interest rates than credit cards. Moreover, this type of loan is generally unsecured and therefore doesn’t require you to put up your property as collateral. However, when applying for a personal loan, many borrowers ignore vital aspects associated with it and make dire financial mistakes. Let’s look at 5 personal loan pitfalls to avoid in the UK:
Bad Customer Service of the Loan Provider
It’s prudent to find a loan lender with good customer service. That’s because a good customer service provider can explain the nitty-gritty details and terms of the loan based on your income, credit score, and other eligibility criteria. However, if you find a loan provider with lousy customer service, it’s likely that you’ll not be aware of some applicable terms and conditions. Thus, you won’t know what to expect in repayments, and your loan might be more expensive than you think.
Besides, should you find yourself in a position where you’re unable to service the loan, you want an institution that’s understanding and flexible, and that’s reflected by good customer service.
Applying Too Many Times
In an attempt to get enough money, you may try to apply for many personal loans. However, any loan application you make, whether successful or not, usually appears on your credit report. That’s because when a lender processes an application, a hard inquiry is made. Too many hard inquiries can hurt your credit score and affect the interest rate you might be charged. Moreover, lenders will assume you’re desperate for money and hesitate to grant you the loan.
Lack of Reason for Applying
It’s advisable to take a personal loan only when you have genuine financial needs such as debt consolidation, emergencies, paying past-due utilities, medical bills, or funeral expenses. Taking a personal loan for recreational purposes such as throwing parties, vacations, or something you don’t need in the immediate future will become a burden later.
Applying When Having Bad Credit
Lenders often check your score to examine your creditworthiness. So, if you have a bad credit score, there is a high chance you’ll be denied the loan, unless you specifically seek lenders or brokers who work with bad credit borrowers. Typically, here are some of the pitfalls that come with a bad credit score:
- Interest rates: Bad credit loans usually attracts high-interest rates, and hence it’ll become expensive to borrow.
- Loan amount: Bad credit can lower the amount of money you can borrow.
Beware Of Scam Sites
It’s possible to fall prey to loan frauds when you’re in a financial dilemma. So, when you’re financially vulnerable and need a quick solution, beware of scam sites. Here’s how to spot a loan scam:
- FCA approval: All lenders should be registered with the FCA. So, visit the FCA register to check if the provider is legitimate.
- SSL and green padlock: Scammers are adopting SSL and green padlock to register domain names and create certificates for their websites. Therefore, avoid clicking links in an unsolicited email or message since scammers use them to direct you to spoofed sites. Instead, find a site via an internet search or type the URL into your browser’s address bar.
- Real company: Most scammers try to be untraceable to avoid any legal consequences. Hence, it’s essential to do business with a loan provider who has a physical address.
Taking a personal loan is a form of assistance in relieving you from a financially tight spot. However, it’s a smart move to keep in mind the above-mentioned pitfalls to avoid making financial mistakes that could end up crippling you for years.