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Consumers in the UK take loans for various purposes. There are a number of reasons that motivate people to seek out financial institutions to offer them access to extra funds. Below are some of the most common ones.
Emergency Financial Needs
Most people try their best to save for the rainy days. There is no telling what might happen along the way that may upset their finances. However, despite the best efforts, many people still find themselves sin situations where they require added funds to cover for whatever they need to pay for. Among these include broken boilers, medical bills, car repairs, home repairs, and even rental fees. While many would first refer to friends and family to augment their finances, people who aren’t as lucky often have to secure payday loans or other short-term loans that allow them to get access to cash fast.
Big Life Events
There are people that decide to take out a loan in order to finance some really big events happening in their life. Most of the time, this could be a wedding, costs for having a newborn, anniversary, costs for education, and even honeymoons. While people also try their hardest to save up for these events- after all, they would want these big events to be memorable and special- oftentimes, however, the costs could add up to something that is beyond more than their savings can cover. Hence, the need to take out a loan.
There are households that have accumulated so many debts that they’re having a hard time tracking their repayments, their due dates, and even the specific lenders they owe money to. Cases like these would benefit from a loan consolidation. This is where a consumer will take out a loan to cover the combined sum of all his debts. This then allows him to pay off all the lenders that he owes money to and in turn, just leaves him with one loan with one interest rate to pay for every month.
Another common reasons why people in the UK take out loans is for lifestyle purposes. They might want to do something about the current state of their home and have it renovated. Some might want to add living spaces to the house, add a home office, or even an extra bedroom. Buying a new car may warrant taking out a loan as well.
Logbook loans may not always be the first choice that people pick when borrowing. However, many of those that do turn to them are borrowers with poor credit history or those that need emergency finance boost but could not secure a loan anywhere else. If you are considering the possibility of turning to these loans, you will generally wonder what impact it might have on your credit score.
Logbook Loans and how they work
Logbook loan lenders do not usually perform credit checks. Their monthly income requirements tend to fall to the minimum as well and in most cases, will only require borrowers to have a valid bank account for the instant approval that most of them provide. This alone makes them quite an attractive option for borrowers that are cash-strapped.
This is where the trap lies, however. For desperate borrowers, it is easy to convince themselves that they can pay the loan and the interest rate come their next payday. However, if you have borrowed more, this means you already have a smaller amount on your next payday to begin with. This has a potential to lead you into a debt cycle.
Logbook loans and your credit
Generally, payday loan activity will not show up on credit reports. At some point though, some agencies involved in credit reporting might pick up your history with these types of loans. This could lead lenders to get access to this information and this could have an impact on your loan approvals in the future.
Also, if you do not repay the payday loan, it can get sent to a collection agency which could then report the account to national credit bureaus. This could have a huge impact on your credit score. Payday loans can cause your paycheques to come in smaller amount since you do not just pay what you borrowed, you have to pay for the fees attached to the loan as well. This makes it a huge challenge to get them paid back on time especially if you will consider the fact that you’ll have other monthly expenses and bills to cover as well. In addition, every time you pay the lenders late, you incur even more fees.
Positive impact of Logbook Loans
You can, however, use payday loans to impact your borrowing chances in the future. If you take the necessary effort to get a payday loan paid on time, you can use this to show evidence to future lenders that you are responsible with your finances. Paying it on schedule and in full will boost your credit score. To do this though, you'll need to borrow just the right amount that you know you can conveniently pay back come the due date.
So, if you can, try to only take out a payday loan when you most need it and when you are sure that you can pay it back on time.