Credit is a power that develops wings to your dreams. However, too much of instalment loans and credit card bills can bring a mountain of bad debts on the way.
Herein it is important to understand that having bad credit score and bad credit history is only a temporary phase of life. These could be a result of bad financial decisions or changing markets or for that matter, for no fault of yours. The solution to reversing bad credit score doesn’t lie in finding the faults in the credit information report alone, the solution lies in finding an answer to each of the flagged issues in CIR.
For example, if your monthly credit utilisation is more than the permissible limit, you need to either raise the limit or reduce the use of credit card. Rolling over credit card balance every month is not good for your credit worthiness. Using an instalment loan you can clear the balance and save on the interest.
Whether you seek bad credit loans or loans for people on benefits,the need for additional funds is almost instant. And there is high temptation to draw instant cash loans such as payday loans. But before you take a leap in this direction it is important to weight down pros and cons of both the options. The most important factor to look into primarily remains the total cost of the loan and mode of repayment. For, when you fail to repay a loan, the bad credit history would turn worse and you may enter a debt trap.
Pay Upfront or Pick an Instalment?
When you opt for payday loans, you agree to repay the whole of the loan amount with interest rate on your next payday. The loans are generated for a very short period which is not more than 30 days to be precise.
While when you go for instalment loans for bad credit situation you agree to repay in instalments. The instalments are divided across the loan duration. Let’s take an example to understand the decision here.
You seek a £1000 loan to clear your debts. Herein you can either get off your liability by opting for an instant payday loan for the equal amount or negotiate with a lender for a short term or medium term instalment loan.
In case you opt for a payday loan the amount would be disbursed to your account in a matter of a few hours or earlier in some case, however it might take a couple of days or more to clear the documentation and avail the instalment loans.
Coming on to repayment, the payday loan calls for repayment of total amount £1000 plus interest rate on the repayment date. Failing to repay would attract very high later repayment charges. Being instant loans, payday loans are expensive loans and APR% can be as high as 390%.
While when you apply for an instalment loan, the £1000 would be paid in parts across the loan duration. Say, you sought an instalment loan for £1000 for 1 year and every month you pay £110. The APR % ranges from 25 to 100 % according to your credit situation.
Before you apply for a payday loan you need to gauge your financial situation and answer if you could afford to repay the whole of the amount in a single go? With the current shortage of funds, the loan that brings ease of repayment is certainly more attractive.