Taking out a loan is something most people have to do at some point in their lives. Borrowing can be a great way to finance a large purchase or tide you over for a time, but sometimes, debt can control you, rather you being in control of it.
If your debts are unmanageable, then life can be a struggle. Not only is it harder to take out a loan and borrow, it can also impact your life in other ways. So we’ve put together a quick guide explaining the hidden pitfalls of debt.
Defaulting on repayments will seriously affect your credit record; so make sure that you can afford to repay a loan.
Securing a Home
Most landlords and property agencies run credit checks, so a poor credit record will affect your ability to rent a property.
Loans and Credit
Having a bad credit record maximises the risk lenders take in lending to you. This makes it harder to borrow and you will be charged higher rates of interest on credit cards and loans.
Car and Phone Finance
A poor credit score makes financing a new car or even taking out a mobile phone contract difficult.
Some employers believe that managing money sensibly shows character, and will now refuse to take on employees with bad credit.
Finally, if you find that you are having problems, and cannot manage your repayments, don’t panic. Taking control of your debts allows you to repair your credit score and life, and there is help available. A good specialist debt advice unit can help you manage your debts and take back control.
Avoiding Pay Day Loan Debt
The Consumer Credit Counselling Service, have recently reported a threefold increase in the number
of people applying to them for help with payday loan debt. Many companies within the payday
loans industry do not file customer borrowing information with credit reference agencies, which
makes it possible for customers to take out multiple loans. The net result is more people than ever
accruing unmanageable debts, and with some payday loan companies charging APR rates of over
4000%, it’s not difficult to see how damaging this kind of multiple debt can be.
So How Can You Avoid Falling Into a Payday Loan Debt Trap?
Ask yourself if a loan is absolutely necessary. If you are borrowing money to cover essential expenses
then you probably do need a loan. But if you are simply borrowing to fund non-essential items, then
you should really be questioning your decision to take out a loan.
Do not take out multiple loans. Payday loans can sometimes be useful as a short stop gap if there
is no other choice, but taking out more than one payday loan at a time will lead to even greater
Always check that the lender you are applying to runs credit checks. A responsible lender will not
allow a customer to borrow if they cannot comfortably repay their debt.
Consider other types of loan from lenders who do not charge such a high APR rate. Social lenders
and Credit Unions offer far better terms.