Online lending has come a long way; however, it has lately gained momentum. An increase in money needs due to a change in the lifestyle of people could be a cause, but strict loaning rules by traditional institutions play a vital role in pushing them to online lenders.
Emergencies can put anyone on the back foot, meaning they do not haunt you only when your credit rating is impressive. Imagine your credit score is not good at all, and you need an urgent cash injection. Mainstream lenders, including banks, will not entertain you.
Acknowledging the fact that people could have an abysmal credit report because of some unavoidable circumstances like missed payments as a result of being sick in hospital, private lenders came forward to entertain bad credit applications too.
Unfortunately, this lucrative business drew loan sharks into the lending industry, and soon things began to work against the borrower. As a result, FCA had to jump in, not just to cap interest rates but to warn borrowers against unethical lenders.
Factors to look over to pick a reliable money lender
Although some lenders have already been pushed out of the market, you cannot throw your caution to the wind while borrowing from a direct money lender in the UK. Here are the things you should see while choosing the best lender:
Would you lend money to someone who you do not trust at all? Likewise, a lender will determine your credibility based on your past payment records and current income sources, but how would you decide if a lender is ethical?
While many lenders have been hitting the headlines for following unethical lending practices, you would certainly not want to be trapped by anyone notorious for offering unaffordable deals. Therefore, experts suggest that you do extensive research.
As you might not have enough time to do research when an emergency crops up, make sure that you have already done your homework beforehand. This will help save you time and prevent you from signing a bad deal.
Read online reviews to know what lenders’ clients have to say about them. Testimonials on their websites may not be genuine, but Google reviews can help gain insight into their lending practices. Social media platforms may help dig up information.
Just search them by their name; you will likely see comments from people mentioning them.
- Interest rates
Online lenders were held responsible for capitalizing on their poor financial condition to extort money as they charged outrageously high-interest rates. A large number of people in the UK found it harder to repay a bad credit loan as they were imposed higher interest rates than usual. This results in an endless debt trap.
In case you are not aware, interest rates may vary by lenders. Further, processing fees, upfront fees, and hidden fees could add up to the cost of debt. Although interest rates involve the share of profits of a lender, an ethical lender will charge sensible interest rates.
Choose a lender that charges the lowest interest rates. You can get this information from their websites. If there is no clarity on this part, you can ask them about it on a phone call. There are some websites that compare the deals offered by different lenders.
- The repayment length
Your research does not end here. At the same time, you need to check the repayment length. When you borrow a large amount of money, you will be required to repay the debt in monthly instalments. This is generally applicable when you apply for personal loans for people with bad credit.
However, the loaning amount is too small when you borrow for emergency purposes. You will be asked to repay the debt in a lump sum. It can be challenging to cover this additional expense from your current cash inflow. Try to find out a lender that offers flexible repayments.
They may allow you to repay the debt in weekly or bi-weekly instalments. In some cases, the repayment period could be a month or two. When you are to repay the debt over a couple of weeks, you will find it more manageable and, therefore, have fewer chances of falling into debt.
- Specialised lender
There are some lenders that offer various types of loans, from short-term loans to business loans. You should avoid borrowing money from such lenders as they do not specialise in lending any kind of loan.
If you want to borrow small loans, you should choose the one that offers emergency and personal loans.
They are more specialised in lending money. They will look not just at your credit score but your repaying capacity. Each borrower has a different financial situation, and therefore, you all cannot repay the debt at the same terms and conditions.
While some may be asked to repay the debt in a lump sum, others will be asked to pay it back in instalments. Specialised lenders are able to make better lending decisions, so you do not fall into a debt trap.
If you borrow money from a lender offering all types of loans, it is likely that you are among a few of those who borrowed money despite a bad credit rating. Since the lending company has experience providing business loans generally available for good credit people, you may be unfairly charged interest rates.
The bottom line
Choosing the best money lender can be intimidating and time-consuming, but this is worthwhile. It is essential you do extensive research before filling up the application form.
Compare interest rates, so you choose a lender that lends money at the most competitive interest rates. In addition to interest rates, check if the lender provides personalised repayment methods.
Make sure that you choose a lender that has experience or specialization in providing the kind of financial product you are seeking. Not to mention, you need to check the credibility of a lender. Dig up information online about what their clients think about their products and services.