Financial hiccups become common after losing your job. Dealing with everyday needs and planning for the worse leads to never-ending pressure. The situation with diluted savings and no spare cash is alarming. It impacts the lifestyle but the mental state as well.
Sudden job loss provides no opportunity to save some. Life becomes miserable dealing with cash constraints as a part of routine life. One with zero savings and regular income finds themselves in a fix, especially in emergencies. Where to get the cash from? It becomes a primary concern.
You may reach out to your friends and loved ones, but sometimes, the urgency is high. You need a solution that meets your requirements without apparent obstacles.
One such solution is- Unemployed loans.
What are loans for the unemployed?
These loans are for individuals with low income or redundant status. The lenders provide small cash assistance to unemployed people for emergencies. Jobless individuals find it hard to manage expenses before getting redundant pay from the employer. Some apply for universal benefits for unemployed people immediately after job loss. Qualification and cash processing may be time-consuming.
Unemployed loans help cover the expenses in between the period. One can get these loans by just providing any income proof. A part-time job or income from benefits qualifies as a legal income source here. Only some lenders provide loans on benefits, but it is possible.
Qualifying for these loans for the unemployed in the UK premises is easy. You do not need a guarantor, collateral or deposit to get the loan. It eliminates any hassle of tiresome documentation. It is the reason these loans are popular among the unemployed. Unregulated borrowing may prove troublesome for you.
What can be the repercussions of unemployed loans?
The ease of availability of unemployed loans makes it easier to qualify for small amounts. One can do so for any possible short-term requirement. Sometimes, loans may prove detrimental to your financial and mental health. Here is how it may impact your finances:
1) Competitive interest rates increase loan costs
Unemployed individuals lack strong financial cover. They fail to provide a reliable income source. It increases the risk on the lender’s part. Moreover, unemployment affects the credit score of a person. If someone is unemployed for over 6 months, the credit drops significantly. Dealing with a bad credit profile with no reliable income becomes problematic for the lender.
Hence, he imposes competitive interest rates before approval. High-interest rates imply high overall loan costs. It becomes challenging for the unemployed to meet the payments and close the loan.
2) Unstable income leads to missed payments
Most unemployed have a part-time job or another income source like- income from rentals. In both cases, one cannot ensure a particular date. The tenant may delay, or the client may deny the payment. In this case, one may miss the payment on the unemployed loans. Missed payments attract additional interest costs and penalties. APR over the loan increases in this case. It creates a difficult situation for the unemployed. Pay a huge amount gets challenging.
3) “Default” status may impact further borrowing
If one cannot meet timely repayments due to budget constraints, the loan enters default. It is the worst situation from both financial and credit viewpoints. The lender issues a CCJ against the borrower. It is a County Court Judgement wherein the lender sues you for defaulting. It may attract additional court orders and hearing charges.
Under this, the court judge may order you to pay the dues within a month. If you cannot, the CCJ remains on the report for 6 months. It is one of the reasons behind bad credit. If you can clear the dues, you may walk free of it.
Sometimes, the situation gets intense, with the lender taking another action to get his money back. The situation becomes stressful after default.
Other lenders can see the “default or CCJ” status. It may impact your future borrowing experiences. You may not get the loan or even if you get it, the loan costs may be higher.
4) Impacts the credit score of the guarantor
If the borrower lacks income and credit score, the lender calls in a guarantor. He is someone in the blood relation of the borrower with a stable income and credit history. With a guarantor, one may qualify for a higher sum at lower interest rates. It ultimately reduces the hassle of overarching costs.
Both the borrower and the guarantor are responsible for the loan repayments. The guarantor pays until the unemployed get a suitable job opportunity. If the guarantor’s finances change within the agreement, he opts out. The lender may no longer consider him ideal to be the guarantor. The loan enters default here. It impacts the guarantor’s and borrower’s credit score significantly.
Suppose you cannot pay the loan within the due time of 30 days. The lender may charge a default charge of £24 in fees and charges per £100 that an individual borrows. The lender may not charge excessive interest cost penalty. It is capped at £15. It implies you pay £24+£15=£39 for every £100 you borrow.
Best Ways to manage loan well
Soft checks make These loans one of the easiest to qualify for. You can get very bad credit loans from direct lenders in the UK with no credit check facility. It means your credit score remains the same even after credit screening.
Though the repercussions may be stressful, you can avoid it ultimately. If you struggle to make repayments on the loan, take these steps:
a) Inform the lender immediately
It is the best way to dominate your situation smartly. If you share a good rapport with the lender, he may help you. He may come with an alternate repayment agreement. You can even halt the payments if he agrees to do so. Identify the possibilities by contacting the lender quickly.
b) Request some time
Halt the payments for a while and work on income. For this, request your lender to grant you a payment holiday. It frees you from repayments for 2 months (minimum). Check the best job possibilities and pay some extra over the loan if the lender allows. It would help improve credit scores and reduce debt.
Working on your income within the loan term can help you in many ways. It may help reduce the overall interest rate and clear debt within time. You need to be careful about the purpose you need the loan for. Identify whether you can manage the repayments within existing income or not. If not, reduce the borrowing amount. It will be more affordable.