From emergency funds to planning your next move, a personal loan can help out when you need some extra cash. But when do you know when taking out a loan is a good idea for your situation?
Most personal loans are unsecured which means you don’t need to put up your home or other assets at risk if you can’t keep up with the payments. But there can still be consequences if you can’t pay back monthly - your credit score will drop meaning you might not be able to get a loan or mortgage in future.
If you do need to take out a loan, here’s what you need to know.
Do you need a reason for a personal loan?
Before you decide on getting a personal loan you need to ask yourself whether you can afford it and whether you need it.
If you can’t afford the repayments then you can get into further financial trouble. If you’re looking for a loan to finance something that isn’t urgent, like a holiday, you might think about delaying your break until you have more available cash.
Some loans are only available for specific purposes - these include mortgages, car loans and student loans. But an unsecured personal loan can generally be used for most purposes although restrictions will apply.
Before you take out a loan think long and hard about whether this is the right route for you. You can use our loan calculator to check whether you can make the monthly repayments.
Does the reason for a loan matter?
There are plenty of legitimate reasons to borrow money but most lenders have restrictions in place when it comes to offering you a loan.
For example, if you wanted to borrow money to fund a gambling habit or invest in stocks and shares your lender will refuse to give you a loan. The same applies if they suspect the loan will be used for illegal purposes or if you’re using one loan to finance a bigger one.
If your lender thinks that your reasons for borrowing aren’t legitimate, there’s a high possibility that your loan application will be rejected.
Can you lie about what a loan is for?
When it comes to lying on a loan application form, the bottom line is that it’s illegal. And with sophisticated checking systems in place, the chances are you’ll be found out. That makes it difficult or impossible to apply for a loan in future and could land you with a conviction for fraud.
Even if you have poor credit, you don’t need to resort to lying to get a loan approved. At Salad Money we use Open Banking to assess the affordability of your loan without ever impacting on your credit rating. You might find it's easier than you think to get a loan if you manage your debt problems and practice a little financial self-care every month to get your credit rating in good shape.
What is the best reason to give for a loan?
As long as you don’t lie on your application or apply for a loan for a dubious purpose, your lender will accept most reasons for a loan.
That’s because lenders are ultimately interested in whether you can afford your loan and pay it back. If they think there’s a high risk that you won’t be able to repay the loan, then you’re more likely to get refused.
Before you consider applying for a traditional loan you need to check your credit history and challenge any errors so your information is up to date.
You should also limit the number of loan enquiries as too many can negatively impact your credit score. That is, unless you’re using an Open Banking supplier like Salad Money, which won’t use a credit file to assess suitability for a loan.
Then make sure you fill out your application with the correct details and be prepared to back up your application with the relevant paperwork like proof of employment.
At Salad Money we offer fair and affordable lending to NHS and public sector workers through our simple online application. It’s the transparent, no hassle way to get approved for a loan fast - and it’ll never affect your credit score.
What is a good reason to borrow money?
Unsecured personal loans can be more expensive than other kinds of borrowing because the lender is taking more of a risk. These are some good reasons to borrow money:
If you have credit and store card debt with high interest rates then a personal loan is one of the best reasons to borrow money. You’ll only have one debt to worry about and you should be able to get debt-free faster. You could also consider a 0% credit card transfer.
You can also use a personal loan to pay down other high interest debts. However, you should only consider a loan if it costs less than you’re already paying.
Home improvements and repairs
A personal loan could also be a good way to finance repairs and improvements to your home. It can also be quicker than a home equity loan and you’re more likely to get approved.
Major life events
Weddings and special anniversaries can come at a cost. If you want to celebrate then getting a personal loan can be cheaper than financing your celebration with a credit card.
Improving your credit score
Taking out a loan to improve your credit score might seem strange, but if you can keep making the repayments and pay off your loan you’ll build a better credit score.
Showing you can handle your loans responsibly can make it easier to get credit in future. But be warned, only use this option if you’re certain you can make the repayments on time.
When the car breaks down or a major appliance fails you can be left out of pocket and reaching for a payday loan. A personal loan is a much better option when you find yourself facing those difficult to budget for expenses.
A Salad Money loan can be in your account in 24 hours so you can cover those emergency expenses and get on with your life.
When should I consider getting a personal loan?
Before you think about taking out a personal loan you should always find out if there are cheaper options available. But if you do need a small sum of money for a short period of time then a personal loan could be ideal.
Some reasons for considering a personal loan are when you can’t get low-cost credit or you want to start paying back existing loans at a lower interest rate. If a personal loan is your least expensive borrowing option then it could be right for you.
If you’re looking to secure a fair and affordable loan and you work in the NHS or wider public sector, then Salad Money can help. We use Open Banking to check your eligibility so it doesn’t impact your credit score and we can approve a loan fast to cover any of those surprise expenses that life throws your way. Contact us today to discuss taking out a loan or partnering with us. Or, use our easy and transparent online application process to get approved for a Salad Money loan fast.