Should you get a Loan if you have a Low Income?
These days it is possible to get a loan even if you are on a low income. This means that many people might be tempted to borrow when they may not have had the opportunity to do so in the past. This can open up opportunities for people, but it can also lead to trouble. It is therefore worth thinking hard about getting a loan in these circumstances.
Before borrowing money, whatever your income, it is worth considering whether you really need it. Think about what the money is for and whether it is something that is necessary for you to buy. Then consider whether you can wait for the item or if you need it right away. If you can wait a while, then you might be able to save up for it. If it is very expensive then perhaps you could save up some of the money towards it. Borrowing is expensive and so if you can reduce the amount that you borrow or avoid it altogether you will be much better off financially.
If you do decide to get a loan, then you need to think about the repayments. Consider whether you will have enough money available to make those repayments. You will need to calculate how much money you have coming in each month and how much you pay out to see whether there is enough left to cover the loan repayment. Consider that some months will be more expensive than others with some expenses only coming once a year, such as car tax and MOT, Christmas, birthdays, insurance and things like that. Will you be able to cope with this sort of thing on top of the loan repayments. They may go on for a long time.
It is well worth considering what might happen if interest rates go up. This could mean that your loan repayments will increase significantly. If you are on a variable rate, which most lending is based around, then it is extremely likely that your interest rate will go up when the base rate increases. This means that you will have to find more money each month to make your repayment. It is worth calculating what part of your repayment will be interest and how much of an affect it will have if rates go up. Calculate it for different increase amounts to see whether you will be able to manage even if they go very high. Bear in mind that you will find that your other expenses will rise as well over time and you may not necessarily get a pay rise.
Obviously some changes will also affect those on higher incomes. However, we all need certain basics to manage and if you are on a low income, a higher percentage on your income is spent on those, meaning that if you have to squeeze your spending, you may not have any areas to reduce it. If you are buying lots of luxuries then you can stop buying those, but o a low income, only the basics tend to be bought and so it is much harder to manage if you need to cut back.
Those on a low income will also be seen as more of a risk to lenders. This means that you are not only less likely to get a loan approved but you may not get such a good interest rate. As you are seen as a risk more money will be charged to cover any extra costs that are created if you cannot make the repayments on time.
There are some loans specifically designed for low income customers and those with a poor credit rating. These are extremely expensive and it is unwise to use these unless you are really stuck. Make sure that you have tried all other means of borrowing and that you are sure you will be able to make the repayment. Ensure that you really need the money as these loans should only be used in an emergency.
It is a huge risk getting a loan on a low income. Finding the money to make the repayments could be extremely difficult and you may be charged more for it. Make sure that you really need the money and the item you are buying with it before you borrow and that you are confident that you can make the repayments on time.