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When you borrow money, expect that there are always extra costs attached to it. Not only are you subjected to interest rates, there are fees and other charges that lenders enforce too. There are even loans that could hit you with extra fees if you decide to pay it off early. This is why if you are considering the possibility of paying your debt early, know what exactly is going to happen first.
Early loan repayments - What you need to know
When repaying your loan, there might come a point where you are earning more than enough to get it paid off before its actual term. However, before you start getting those extra payments made, take the time to look into your loan agreement first. Most of the time, it will include provisions about repayment conditions which lenders will enforce if you get a loan paid off before its term.
You'd think that lenders would be happy when borrowers decide to pay them off earlier than what was agreed. However, they make a lot of money off of interest. This is why, they will not be too keen on you paying off the loan early because they would be losing money on interest that you were supposed to pay them if you stick to the term. This is why some might enforce penalties.
The amount that lenders are likely to penalise you with if you pay off a loan before its intended term can vary from one lender to the next. Oftentimes, it would be based on whatever the remaining loan balance is. Sometimes, it would be based on the worth of the interests. Since there is no set amount on prepayment, so knowing the difference cost-wise is essential.
Temporary credit score dip
When you pay off a loan early, you are closing an account. This can cause your credit score to take a hit which might hurt your chances of better credit deals in the future. This is why it might work to your advantage to just leave the loan as is and pay it off until it reaches its full term as active and open accounts can have a positive effect on your credit rating.
Alternatives to early payment
If you can, negotiate with your lender the loan terms and ask them to get the penalties for early payment removed. If they will not budge though, you can try refinancing the loan with your current lender. You may also refer to other lenders and float the idea of refinancing with them. You can also just proceed with the prepayment provided that the penalty will be worth less than what you would end up spending if you were to continue with the loan term.
If your credit is bad, there are probably other people who are in the same situation as you. Sooner or later, however, you are likely going to need some financial help. It will be significantly harder for you to get a loan when your credit rating is not outstanding. But this shouldn’t stop you from actually getting approved for one.
Bad credit loans
Although not a type of loan in itself, a bad credit loan is mainly aimed for borrowers whose credit ratings are less than what traditional lenders would ideally accept. These are usually offered by lenders who mainly focus their services towards assisting bad credit borrowers.
Bad credit lenders are known for requiring their borrowers to comply with easier loan eligibility requirements. They tend to focus less on the customer’s credit scores. Instead, they shift their attention to finding out whether the amount that customers are borrowing from them is within their paying range. If you at least have a good source of income and you can prove that to the lenders, they will not have a tough time approving your loan.
Online lenders are able to offer to borrowers what traditional lenders couldn’t- fast loan processing. typically, regular loans would take several days to get processed and approved. This makes them less ideal for emergency situations. Online loans, however, can be processed and funded within the same day. So, if there is something urgent that you need the money for, these loans would be ideal.
Drawbacks and disadvantages
Loans of this nature are very expensive. They are unsecured, after all, and are deemed risky by lenders. So, if you’re to take one out, be ready to pay huge interest fees. With this in mind, you cannot afford to miss payments or pay late when taking out these loans. You would not want to incur more fees as this would only make the loan even more expensive than it already is.
Cash loans are perfect for when you’re in need of instant cash and you’ve got nowhere else to go. If you get them paid on time, they can help you fix your credit too.