Emergency loans are unsecured personal loans. They have this name because they are not subject to collateral despite funding urgent expenses. It does not insinuate that they are not ideal for financing short-term needs. Emergency loans in the UK are available from direct lenders and banks. However, online lenders are more flexible than banks, especially for bad credit borrowers.
Well, you must be aware of what are emergency loans and how can they help you is what we are going discuss now.
How much amount can you borrow through emergency loans?
All small emergency loans let you borrow up to £100 or £1,000. The maximum amount varies by lender. Some lenders may be disposed to lend you up to £10,000, while others might feel inclined to approve up to £15,000. How much amount you would be able to borrow depends on your repaying capacity and credit rating.
Do you need a credit score to apply for emergency loans?
A stellar credit rating is essential in order to qualify for lower interest rates. Banks might repudiate your application when your credit score is not stellar, but direct lenders accept applications from poor credit borrowers. Lenders generally make a decision based on your repaying capacity. If your income is quite high, you would not suffer from being approved. However, bear in mind a less-than-perfect credit score will cost you high interest rates.
How can emergency loans help you?
These sorts of personal loans could be used to meet small emergency expenses. They are known as cash loans, text loans, payday loans, etc., but these loans are only meant to meet minor or urgent expenses. Nevertheless, loans for emergencies are most commonly used for the following three reasons:
- Debt consolidation
It is no wonder that most of the borrowers take on debt beyond their repaying capacity. When debts become difficult to pay off, you will end up with late payment fees and interest penalties. This increases the size of the debt. In order to tackle multiple debts, consolidation comes in handy.
Personal loans are used to consolidate existing debts. They are used to discharge the whole of the debt, and then you will be left with only one personal loan to settle. Bear in mind that you must have a good credit score to apply for a consolidation personal loan.
There is a possibility of applying for emergency loans for bad credit from direct lenders to consolidate existing debts, but interest rates will not be so favourable.
- Filling the gap during large expenses
These urgent loans are also considered to fill the gap while making the large expenses such as renovation, weddings, vacations, and the like. Whether you need to fund the gap in your savings or you need an amount urgently, these loans could be fruitful to meet such expenses.
- Purchasing or repairing a car
If you want to finance a car, emergency loans are a great way. They are much more affordable than dealership financing, such as for-hire purchases and personal contract purchases. If you lack a significant amount to be used for booking the vehicle or as a down payment, you can use these loans to cover up that gap. You do not need to put down any collateral, nor are there any restrictions related to the purposes.
In addition, these loans are also vital during a sudden car breakdown. You can easily manage the repair cost without any obligations. Once availing of a loan, you will be paying down a fixed sum of money every month. Therefore, you can easily make your budget around payments.
What are the advantages of emergency loans?
Here are the loan advantages:
- You can borrow desired funds instantly
One of the benefits of using an emergency loan is that you can borrow an instant sum of money. Most small emergency loans are aimed at funding a gap in your savings. They can easily be approved for up to £5,000. However, other unsecured loans could be approved for up to £25,000. If your repaying capacity is strong enough, you will certainly manage to get the nod from a direct lender.
- They help build credit score
Another benefit of these loans is that they help build credit ratings. Whether you want to build your credit history from scratch or improve your credit rating, these loans could serve the purpose. Small emergency loans are also types of personal loans, and they can help with building credit ratings. This is because their instalments are easy to manage.
Unsecured loans for emergencies are paid down in fixed instalments over a period of months. It is likely that your financial condition will change during the loan term. If you continue to adhere to payments, it proves your loyalty towards financial commitment. Your lender will report your on-time payments to credit reference agencies. As a result, your credit score will be improved.
Remember that your score will not improve overnight. Previous defaults and inquiries will be removed from your credit file within their stipulated time period. As long as they appear on your credit file, they will always affect your credit score to some extent.
- No collateral is required
Personal emergency loans are not subject to collateral. It means they are not backed by any assets. This reduces the risk of loss if you make a default. Secured loans might cost less than unsecured loans, but you are at risk of losing your property if you fail to discharge the debt on time.
What is the repayment term for emergency loans?
Small emergency loans do not carry a large amount of money. The maximum amount of money is not more than £5,000. Most of the time, lenders do not borrow more than £3000. As the borrowing amount is so paltry, the payment cannot be extended over a few months. This is why the whole debt is paid off in fixed monthly instalments.
The repayment term is decided based on the following factors:
- The amount you borrow
- The total cost of the loan
- Your repaying capacity
- Your credit score
Things to keep in mind while taking out an emergency loan
It is easy to take out loans by filling in the application form online, but there are certain things to take into account to improve your success rate:
- You should try to obtain prequalifying letters from direct lenders. It will let you know the estimated rate of interest.
- Beware of applying for a personal loan from different lenders within a short period of time because hard inquiries would pull your credit points. Hard inquiries continue to appear on credit reports for two years.
- Compare annual percentage rates, not just interest rates. Annual percentage rates include fees and associated charges, too.
- Review your credit file before applying for these loans. Make sure that the lender you are applying to accepts your scores. If you find any unidentified accounts, dispute them with credit bureaus.
- Keep your debt-to-income ratio low. It should not be more than 30%.
The final word
Emergency loans for bad credit in the UK could be used to cover various expenses, but make sure that your credit score is not very poor. Compare interest rates and evaluate your repaying capacity. It would be much easier for you to grab the most affordable deal.
