Consumer credit is issued in many forms, from short-term credit card options to long-term instalment loans. Many forms of credit address particular funding needs. Mortgages serve home buyers, for instance, while student financing can only be used for education expenses. Still other forms of credit leave discretion in the hands of borrowers, who use these lines of financing to cover myriad costs.
As you manage revolving debt or prepare to take-on new financing, it is important to anticipate the conditions and consequences of using various forms of consumer credit.
Economic Conditions Influence Lending Markets
Personal loans provide flexible financing solutions for UK residents in need of versatile funding. As prevailing economic conditions ebb and flow, lenders adjust their standards and practices issuing loans. This can be a distinct advantage or a problem for borrowers. On one hand, applicants with strong credit may land favorable terms, when economic conditions support liberal lending. At other times, however, lenders step back, requiring would-be debtors to jump through additional hoops. Current conditions have resulted in a pricing war for some forms of financing, including personal loans falling within certain parameters.
Recent years have seen spirited competition among lenders trying to land business with loan-seekers needing resources in the £7,500-£15,000 range. The strong competition has pushed interest rates lower, flirting with 3% APR at times. Some observers point to an industry shift in lending and marketing practices, which have taken a turn – now aggressively courting potential personal loan customers in need of larger sums of money. Tesco Bank, for example, recently shaved interest rates on some of its loan products in the £15,000-£25,000 range. Tesco Clubcard holders now have access to funding at 3.4% APR, for loans paid back within 8 years. And Sainsbury’s Bank has made terms very attractive for borrowers adding personal loans valued between £20,000 and £25,000. As long as loans are repaid within 2-3 years, the bank will furnish money at 3.3% APR. It is important to remember, however, that things are not always as they seem, relative to these low advertised rates. In order to meet legal thresholds, the banks are only required to provide these discounted rates to 51% of approved applicants. Others may not receive the same treatment, though the general trend toward lower rates still applies to this group of borrowers.
A Conventional Loan is not Your Only Funding Option
Traditional personal loans are not the only available avenue for loan seekers. If your credit history and earning levels are insufficient to qualify for the market-leading personal loan rates mentioned above, hope is not lost. On the contrary, several other lending options can be utilised to meet your financial needs. Guarantor loans, for example, are appropriate for general spending, used to cover pop-up expenses, buy cars and consolidate high-interest debt. Guarantor options are particularly well-suited for those applicants with the means to make timely repayment, but with extenuating circumstances preventing them from securing conventional terms. The unique form of financing relies on a second party, who volunteers to guarantee your loan. Family members are routine guarantors, but friends and others interested in advancing your cause are also eligible to sign on. Of course, the willing party must have good credit references, in order to add strength to your loan application. With the added assurance of a second responsible party, lenders carry less risk, so your application is fast-tracked toward approval.
Alternative financing possibilities also include equity products, secured by the value of your home, and short-term payday loans, guaranteed by your paycheck. For the best returns, match the loan you select with your particular financial needs. A sizable monetary commitment, for instance, would not be a good candidate to be paid using payday funding. These loans are strictly short-term, relying on payday payback. Should you falter and become delinquent; fees and penalties build rapidly, leaving you with insurmountable debt. The damaging cycle is easily avoided, by choosing a more appropriate loan for your circumstances. A temporary cash flow set-back, on the other hand, is easily bridged using short-term financing, without lingering effects.
Managing personal loans and other forms of financing is a natural part of household money management. To ensure the best results, consider all available options before making commitments and understand the advantages and drawbacks associated with each type of loan.