What Can I Use a Small Personal Loan For?
Some expenses can break the bank if you pay them off from your savings. Personal loans can help you spread the cost of such an expense into affordable monthly instalments over a fixed period.
Unlike mortgages or car loans, personal loans are not earmarked to solve a particular type of financial problem. You can use a personal loan to solve various purposes – home improvement projects, emergency medical bills, car repair or debt consolidation.
Read on to find out what you can use personal loans for and how to apply for them online.
What is a personal loan?
A personal loan is a form of unsecured credit that you can borrow without collateral security. Personal loans make it easier for people to finance their ventures. Instead of tapping into your savings, you can use a personal loan to cover certain expenses and pay them off in easy and affordable monthly instalments.
The lending limits can vary from one lender to another. Most lenders can lend up to £35,000. However, you will need a stellar credit history and a decent income to borrow such an amount.
Typically, the interest rates for personal loans are higher than that of secured loans, mainly because these loans are a high-risk proposition for lenders. But just how high these interest rates can get depends on your credit profile.
Your credit history plays a pivotal role in driving the lender’s decision. With a good credit history, you may be able to borrow a sizeable sum of money at competitive interest rates. If you have a poor credit history, on the other hand, you may not be able to qualify for competitive rates. So, planning your loan may buy you some time to work on your credit report.
Personal loans have repayment implications too. Failing to keep up with your loan repayments can gravely damage your credit score. Your lender may even get a County Court Judgement issued against you, hampering your chances of securing credit in the future.
A personal loan, if used responsibly, can help you build or improve your credit score. As long as you borrow an amount that you can afford to repay, you can easily keep up with your loan repayments by including them in your monthly budget.
What can I use small personal loans for?
Here’s what most people use small personal loans for:
- Minor home improvements
- Repair works
- Debt consolidation
- Settle emergency medical bills
- Cover wedding expenses
- Purchasing a new appliance
- Buy business equipment
Where to find personal loan lenders?
Multiple online and offline platforms offer personal loans in the UK. You may either approach a lender or a broker to help you find a suitable loan option. However, the easiest way to obtain a personal loan is through an online broker like Loan Princess. Here’s where you can look for financial aid in the UK:
- High-street banks
- Building societies
- Credit unions
- Online lenders
- Online brokers such as Loan Princess
- Dedicated lenders
- Secured loan providers
- Government grants or schemes
How to keep up with repayments for a short term personal loan?
Planning out repayments is a crucial step in your borrowing journey. Repaying your loan on time gives your credit score a boost, making it easier for you to secure credit to fulfil your life goals. While you cannot follow a one size fits all approach to organizing personal finances, you can undoubtedly start somewhere. Here are a bunch of tips to help you manage your short term personal loan repayments efficiently.
Create a Budget
If you haven’t already, set up a monthly budget for yourself. Inculcating this habit will help you keep track of your money. Jot down your monthly income and then list all your expenses – loan repayments, utility bills, groceries, mortgage, etc. Knowing how much you’re left with can motivate you to curb the urge of spending the money. For people who frequently indulge in overspending, budgeting can be a great tool for a reality check.
Set up a direct debit.
Direct debit is a facility wherein you allow monthly instalments to be directly debited or deducted from your bank account, usually on a fixed date each month. Direct debits are a great way of ensuring timely loan repayments. However, it is vital to ensure that the bank account set up for direct debit has a sufficient balance before the payment gets deducted.
Consolidate your debts.
Dealing with multiple loans isn’t easy. Having to keep up with the repayment dates and interest rates for each of your debts can be cumbersome. Debt consolidation can help you organize your finances. You can use a debt consolidation loan to combine all your debts into a single loan, with easy and affordable monthly repayments.
Refinancing allows you to switch to a new deal with better loan terms and, possibly, lower interest rates. If you’ve worked on your credit score by consistently repaying all your loans, you may be able to find a loan offer with competitive terms. An offer with lower interest rates can significantly reduce your monthly payments, saving you money. However, you should check if your lender charges an additional fee for the early settlement of the loan since it could incur extra charges, which may not worth it in the longer run.
Check your account balance regularly.
Not a lot of us regularly track our account balances and bank statements. It is essential to ensure that your bank account has a sufficient balance before a payment gets deducted. You can either use the application provided by your bank or use an app that alerts you if your bank balance falls beyond a certain amount.
Pick the right account for monthly payments.
Withdrawing money from a brokerage or a savings account to repay your debt may not be the best idea. These accounts earn you interest, and it may not be worth using up this money for loan repayments.
You can use your checking account to pay your monthly instalments. Set up the direct debit facility for your checking account and ensure that it always a sufficient balance.
Keep your lender informed.
The Coronavirus crisis brought the nation to a standstill. However, the government has been actively introducing grants and schemes to alleviate the struggle of people. If you’ve recently lost your job, or for some other reason, are unable to repay your loan, you should discuss it with your lender.
The lender may be able to propose a more affordable repayment plan for you. The sooner you reach out to the lender, the less you’ll fall behind your payments.
If you miss a payment as a one-off event, you’ll most likely only be charged a late payment fee. This will get reported to the CRAs but won’t leave a lasting impact on your credit score.
Personal loans, as a financial product, are versatile and easy to access. These loans can be your financial aid to fund a variety of projects. As long as you borrow an affordable amount and use the money responsibly, a personal loan can help you improve your credit score.