It could be challenging to cover unexpected bills when you do not have savings. A golden rule of thumb says that you must have at least three months’ worth of living expenses to pay for unexpected bills. Unfortunately, many people fail to have a sufficient size of nest egg for a rainy day. How to pay for urgent bills when you do not have savings to fall back on?
Here comes the role of emergency loans. An emergency loan is a small personal loan which you take out to pay for unexpected bills. The loan amount is so small that it is paid back in one shot.
- Emergency loans are small personal loans with a lump sum repayment plan.
- The repayment length of these loans cannot be more than £1,000.
- The borrowing amount is between £100 and £1,000.
These loans cannot help improve your credit score despite on-time payment, but they can damage your credit rating if you miss a payment.
How to qualify for an emergency loan
Most of the people often ask how to get emergency money with poor credit in the UK. Qualifying for emergency loans despite poor credit is not difficult. You will need to complete the following steps:
Check your needs
First off, you need to identify your needs. Whether you need £100 or £500, having clarity about your needs is a must to ensure that you do not borrow a large amount of money.
Experts suggest that you must not borrow more than you need, as loans require you to pay interest. Even if you are certain about your repayment capacity, you should avoid borrowing more than you need.
Assess your affordability
Identifying your needs is one thing, and assessing your affordability is another. It is likely that you need £500, but you might not be able to pay back the debt on time. It means you should not borrow more than you can afford.
The best way to calculate your affordability is to determine the total cost of the debt. While it is hard, you can calculate it using the representative APR through an online loan calculator. The next step is to find out whether you will be able to pay for all essential expenses along with debt settlement. If not, you will have to reduce the borrowing amount.
Check your credit score
There is no doubt that your credit score will be thoroughly checked. Even though the loan amount is small, no lender would be able to sign off on your application without a credit score review.
Though subprime borrowers are also welcome, it does not insinuate that all bad credit score ranges are accepted. Every lender has their own acceptance criteria. Before applying to them, make sure that you meet their approval criteria. Otherwise, it will lead to rejection and yet your credit score will decline further.
Demonstrate your repayment capacity
You cannot just rely on your credit score when it comes to getting approval from a lender. You cannot get approval if you cannot prove your repayment capacity. Just having a good credit rating is not enough. You will have to prove that you will not have difficulty paying off the debt.
Make sure that you keep all your documents ready, especially pay slips and a bank statement. Not all lenders will require you to submit these documents for an exiguous sum, say, £100. Make sure that you provide accurate information about your income to your lender.
Providing accurate information about your income will preclude you from borrowing more than you can afford.
Submit your application
Once you have determined how much amount you need and you can afford to pay off, fill in the application form. Provide accurate details of your income and expenses so that you do not struggle with payments later. Make sure that your personal details are also accurate. Otherwise, your application will be straightaway rejected.
Read fine prints
After running an affordability check, a lender will send you an approval email along with a loan agreement. Make sure that you read all fine print so you do not face ugly surprises down the line. Sign the agreement, and you will receive funds instantly.
Pay off the debt
Having received funds, you are free to use them the way you want. However, you will have to ensure timely payments. After paying off the debt, your account will be closed.
To wrap up
If you cannot cover an urgent bill and you do not have savings to fall back on, you should consider emergency loans. These loans come with a small amount of money and are expensive. It is advisable that you carefully analyse your repayment capacity.
While lenders run an affordability check, you should figure out your repayment capacity too. Borrowing more than you can afford will result in a debt spiral. Be cautious while taking out emergency loans.
Also read what young uk adults need to know about credit and borrowing.
