25 Apr What is a Loan and Why Take One Out? Pt2
Consume Consume Consume
So says the mantra of 21st century mainstream everything. And, boy do we know how to consume. Ever tried not spending money for a week or two?
Try it and see how long you last. We’re conditioned from almost birth to see it, want it and get it. If you can’t afford it on what you have coming in every week, month or fortnight that’s no problem. That’s because somebody at some point back in time came up with the novel idea of lending money at a profit.
As the centuries have passed we have become more and more sophisticated in our approaches to money and how we both get it, spend it and save it.
You don’t even have to leave your chair these days and the money will come to you. No more traipsing up and down the High Street going in and out of every bank and mutual society you can find in your hunt for some spending moolah.
Whether it’s a brokerage like us, Badger Loans or a direct lender like Nationwide we all try to make sure everything can be done 100% online from the application form filling to the sending of your money, it’s digital.
Even the money is digital. While the coronavirus has had the effect of weakening cash’s place in our society to the point it has become increasingly difficult to bank cash these days, those of us who had concerns about the displacement and replacement of cash as a means of transacting business needn’t worry too much while Bitcoin is around and kicking up a storm as that will become what cash has traditionally been.
Check this out to see what we mean:
Five Reasons To Take Out A Personal Loan
No.1 Reason for taking out a Loan – Debt Consolidation
Now we’re into the meat of why we’re here. Believe it or not one of the top two reasons for taking out a personal unsecured loan is debt consolidation. A particularly valid reason for a loan and one lenders used to look down their noses at a decade or so ago. It implied you weren’t too good at managing your money. Not so these days when a lender can see pretty much everything you’re up to financially (apart from what you spend with good old cash). Taking out a loan to pay off other people’s loans is now seen as good practice. It makes sense to put all your loan eggs in this one basket. It means you will now have one interest rate to pay and one payment coming out at a time to suit you every month. You will also hopefully find that your monthly payment is considerably less than the total of all your payments before. That’s consolidating your debt into one place.
No.2 Reason for taking out a Loan – Paying Off Your Credit Cards
Yep, more debt to pay off debt. Now all that consumption has filled us up and made us full, our bank balances are empty and our credit cards are maxed out. Sound familiar? Now may be the time to consider combining your credit cards into one place. Depending on the type of credit card you have and the reason you took it out, your interest rate will vary.
Balance transfers are typically done at 0% for a few months then revert to the lender’s standard rate. That’s the rate to look at. A bog standard High Street credit card should be charging you between 15-25%. That’s still a lot but not as much as some of the credit builder cards which usually come in at between 30-40%. That can make a huge difference in minimum monthly repayments.
Therefore look and then look again at whatever the lender says their standard rate is because that’s what you’ll be paying most of. A typical High Street personal unsecured loan should be between 5-15% . Again, depending on risk and profile but this is still way cheaper than the best of the credit cards. Never take out a ‘payday loan’ to repay credit card debt. Payday loans mostly charge 50% as their true rate of interest. To get an idea of how APRs work and why we’re not mentioning them have a look at our blog post on the subject here:
No.3 – Home Improvements
At Last! Something worth smiling about and where you’re not paying money to pay for something you paid for a year ago but are still paying for – geddit?! Maybe you fancy a swimming pool or a nice bit of decking outside your back door. Or perhaps a new kitchen or bathroom floats your boat.
Whatever it is, a touch of home improvement could add value to your home but more importantly could add value to your life. If you get your life’s worth from material goods that is. But we all like some of the nicer things in life and if you work hard or smart keeping all the plates in the air, treat yourself to a bit of what you like and an unsecured personal loan won’t mean your house or flat is liable to be repossessed if the worst happens and you can’t make the repayments further down the road.
No.4 – Funeral Expenses
Here in the UK we have a welfare state that picks up the bill for a lot of what can get thrown at you. Unfortunately, dying isn’t one of them. Our government does however have help available if you’re on certain benefits and will pay up to £1,000 towards some funeral costs. More details on this is available here:
As funerals have become ever more expensive, £1,000 is helpful but won’t go a long way. Enter our unsecured personal loan. Not the most pleasant of reasons to be shopping around for credit. However, it is a valid and acceptable reason to be borrowing money. The rise in popularity of secular funerals in lovely green out of the way places the price has risen accordingly. Caskets, wakes, the venue itself and a host of associated costs can quickly take a funeral into four figure figure sums. According to Dignity Funerals the average cost of a funeral in the UK is a little over £4,000 average cost of a UK funeral. If you’ve taken out a pre paid funeral plan then you’ve done the right thing by securing your burial at today’s prices. Don’t let the cost either eat into your estate or just leave it to your kids or someone else to deal with. Here’s a guide to prepaid funeral plans.
No.5 – Loans for Cars/Holidays/Big Ticket White Goods
Yes we know, there’s three reasons in the title. One of them could contain at least another half a dozen reasons on its own. A lot of people these days use things other than a personal loan to buy a car. There’s various types of leasing arrangements and even Hire Purchase has been overtaken by contract leasing. We still like to think some people go out and use their loan for the old reasons, like car buying. And going on an all expenses luxury holiday you only do a couple of times in your life. Worth getting into debt for? You betcha!
You might still be making the loan repayments in 3 years time but the memories will last a lifetime. Which brings us finally to big ticket white goods. Or a new washing machine if you prefer it that way. Maybe a fridge freezer as tall as your kitchen will allow? Whatever it is you want the money for please make sure you’re not overstretching yourself. Make sure you can afford the monthly repayments if something goes wrong in the meantime.
If you are going to miss a payment, always speak to your lender. Tell them what’s going on. It could save your credit rating and mean the difference between getting your next loan or being declined. Loans are neutral, neither good nor bad. It’s the intention behind them that matters. If both parties approach the lending process in good faith and with honest intentions it should be a simple, straightforward process.
We hope this helps when considering reasons for taking out a loan.
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