Need some extra cash for a sudden bill or to buy something big? You can get the cash you need by taking out a small personal loan of about £1000. But is it really worth it to borrow money and pay interest? When you think about this kind of loan, you should weigh the pros and cons.
Why It’s Good
Get Cash Quickly: If your car breaks down and you need money quickly to pay for the repairs, a £1000 loan could get you the cash within days. It takes a lot longer to save up for months to make this payment. One great thing about small loans is how easy and quick they are to get.
Building Credit History: If you’ve never had a loan before, taking a small amount, like £1,000, can show potential lenders that you can handle debt well. Your credit score goes up when you make all of your payments on time. This makes it easier to get loans, credit cards, and mortgages in the future, and the interest rates are better.
A £1,000 loan will probably have a much lower APR than payday loans and other very short-term loans. It will still charge more interest than a bigger personal loan or secured borrowing, but it will be much lower than payday loans and guarantor loans. This means that small loans are a good choice when you need cash quickly but banks won’t give it to you.
Fixed Repayments: If you get an installment loan instead of a credit card, you’ll have a set monthly payment to plan for. When compared to credit card minimum payments that change, this can make budgeting easier, especially if your card interest rate changes.
Could Consolidate Debts: If you have high-interest debts like credit cards or cash loans, a £1,000 consolidation loan with a lower rate will lower the total amount of interest you pay. Don’t use the old accounts again, or you’ll end up with twice as much debt. Make sure you pay them off and close them.
Possible Problems
Getting a small personal loan can be helpful, but taking on more debt also has some risks:
You Might Have Trouble Making Payments: If your income drops or unexpected costs show up, it could be hard to make your loan payments on top of all your other bills. This could make it harder for you to pay for things like food and rent, and if you don’t make payments on time, it could hurt your credit score.
It’s easy to think that the monthly payments on a £1,000 loan will be manageable at first, but the interest charges will make you pay back a lot more in the end. You might have to pay back more than £300 more for a 12-month loan period, depending on things like your credit score and the length of time you choose.
Some people who take out loans for the first time think they are “free cash” that they don’t have to pay back in full. But loans must always be paid back, and generally for a lot more than what was borrowed because of interest fees. This is the case even if you win the lottery or get a large inheritance. Some people get caught by this.
Can Push You Into More Debt: Once you’ve paid back one loan, it may be tempting to borrow more because it’s so easy. This could cause debt to build up over time until it can’t be paid off. Make sure that your borrowing doesn’t get out of hand because it can be addicting.
Putting it all together
Overall, there are good points to be made for both sides of the question of whether taking £1000 is a smart financial move or a risk that is not necessary. Each person has a different situation.
The loan could change your finances if it lets you take advantage of a one-time chance, like investing in a business or schools that will help you make more money in the long run. But if all you want is the £1,000 for a trip or a new TV, it doesn’t make sense to take on expensive debt for things that are losing value quickly.
Take an honest look at your situation. Should you miss a few loan payments and end up in big trouble, it’s better to be safe than sorry. On the other hand, if you have a steady income and are sure you can make the payments on time, borrowing £1,000 could help your funds.