A recent study has shown that 44% of UK adults live in financial uncertainty. This is largely due to high inflation, the soft recession, and the ongoing cost-of-living crisis. Many people are finding it hard to stretch their salaries through the month and prefer to get an online loan or payday loans in addition to their income, just to cover basic necessities.
During an emergency, it becomes tough to remain logical and calm, and you often end up deciding in a hurry. However, when it comes to financial decisions, it’s important to be responsible and wise. Scammers often take advantage of people’s lack of awareness to dupe them out of their hard-earned money. In such a situation, you can find yourself in deeper debt, making the hard times appear harder.
Proper financial planning, due diligence and understanding basic economic principles can help you borrow responsibly even during a crisis. Let’s look at some top ways to ensure financial preparedness.
Assess Your Financial Situation
Before you decide to borrow, it is important to understand your current financial situation. While your savings account may not have enough to cover the emergency, you might have some money in your fixed-term deposit account, emergency funds or easily liquidable investments. If you encash them instead of borrowing, you will save on interest rates.
If you are considering borrowing from friends and family, make sure you are returning the money with the same urgency as you would when borrowing from a bank. Salaried employees can borrow from employers. Your HR or manager may be able to help you in this regard.
If you have exhausted these avenues, you should then consider borrowing from a bank or private lender. However, before applying for a loan, calculate the amount you’ll need and how much you can repay without defaulting on the instalments or going broke every month.
Explore All Possible Borrowing Options
During an emergency, you may not necessarily have the time or space to research your borrowing options. That’s why it’s a good idea to explore them in advance. If you are aware of all the options in the market, you will be able to find the right fit for you during an emergency quickly. Whether it is choosing a personal loan or finding a competitive payday loan, these options should already be bookmarked for a rainy day.
You can borrow from high-street banks or FCA-authorised lenders who use open banking technology. Credit Unions in the UK are not part of the mainstream financial sector but are growing in popularity. If you are strapped for cash and have the ability to pay a high interest rate, consider private lenders. They are often more flexible with their approval process and eligibility criteria.
You can also avail yourself of a free, government-approved benefits calculator to get an understanding of the support that you might receive from authorities. In dire situations, food banks can provide supplies. However, you need a referral from GPs, local authorities and social workers. These options are only applicable for the most extreme cases.
Understand Loan Terms Before Borrowing
Every loan will have a different set of terms and conditions attached to it. In your haste, don’t forget to discuss the borrowing terms or read through the paperwork. Look for any additional processing fees, early repayment fees or ambiguity in the repayment terms.
One essential thing to consider is the loan repayment period. Longer periods may mean you pay interest for a longer time, but it might make the monthly instalments more manageable. Feel free to ask your lenders as many questions as you want because once the papers are signed, there is no going back.
Final Thoughts
When you’re in an emergency, it is important to take a step back and calmly decide on your options before you start borrowing. Whether you choose to go with a payday loan, a secured loan or borrow from friends or family, it’s important to be aware of all the costs you are bearing.
Before borrowing, you should also have a repayment plan in place. You should consider whether the monthly instalments are affordable, taking your daily expenses into consideration. It is not a wise financial move to take out a second loan to pay off an existing one.
Additionally, you should not make borrowing a habit. Only use these choices if you are in dire need and are unable to use your savings to cover the cost. When you borrow wisely, you can manage crises without jeopardising your financial security.