Should I take out a loan during COVID-19?

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Should I take out a loan during COVID-19?

Although the UK is starting to see a slow return to normality, for many people, the financial implications of the COVID-19 pandemic will impact their lives for the foreseeable future. If you have been furloughed or even made redundant, taking out a loan may seem like the only viable option to meet your financial commitments. But is it really advisable while the COVID-19 situation is still ongoing?

What do you need the loan for?

Depending on what you need the money for, it is definitely worth considering whether there are other ways to meet your obligations. Banks and building societies are evolving their customer services to help see vulnerable people through these difficult times. If you have a mortgage but are struggling to make your monthly repayments, it is absolutely worth talking to your mortgage provider before you rush into getting a loan. Many mortgage lenders may be far more accommodating than you might think – in some cases, they are allowing people to take a payment break for several months while they steady their financial position.

Similarly, service providers and your local council will also be willing to talk to you about staggering repayments, which may reduce the amount you need to take out as a loan.

Can you afford the monthly repayments?

If you have financial commitments that you are unable to reduce or delay, then you should carefully consider what the most appropriate loan plan would be for you during the COVID-19 pandemic. Whatever you do, it’s important to ensure that you have a way to meet all of the monthly repayments that would be expected of you.

If you aren’t sure what your future finances look like, check what furlough or redundancy payments you are entitled to. By speaking to an advice service or directly to the Department for Work and Pensions (DWP), you will be able to get a proper breakdown of what you are eligible to claim in benefits. You can also work out whether you are able to claim any of your tax back.

Choose the direct lender that suits you

Before you commit to a loan, do your research. There are lots of options available, but not all of them are equal. A quick google will throw up a long list of loan providers if you are looking to apply for a loan online. This can be a confusing process, so it’s good to take your time and read through everything.

Some direct lenders will have a longer application process, if you need a loan quickly it is recommended applying with a lender that can offer same day loans due to the quick application process.

It’s also important to understand the difference between online brokers and direct lenders. Online brokers act as a middle man, sending your details to lots of individual lenders. Direct lenders are able to make a decision swiftly and in a more straightforward manner – they are the companies that actually provide the finance. Most will be able to review your application within a few days or hours, and if you are approved, they can send you the money the same day.

Of course, there are lots of different direct lenders to choose from. You need to carefully consider the amounts, the interest rates and the repayment plan that would be expected. It’s also really important to understand what the penalty rates are – after all, we can expect the financial uncertainty surrounding COVID-19 to continue for quite some time. If you think that there is a danger that your financial situation may deteriorate further, do not put yourself at risk of hefty late-payment fines. Make sure you work with a direct lender that you feel comfortable with – and whose terms and conditions you fully understand.