Extramile Finance

Most of the emergency loans are very small and hence required to be paid back in a lump sum on the due date. Unfortunately, it can be difficult to manage. A missed payment can attract late payment fees and interest penalties, adding up the cost of the debt. Instalment loans should be preferred if your budget does not allow you to cover one-time payments.

A 12-month loan involves fixed instalments so you can easily fine-tune your budget. As you receive your pay, you can immediately set aside that amount and ensure meeting all expenses from the rest of your income.

Because the cost of your debt is spread across the whole year, you might be tempted to borrow a larger sum. Financial experts always suggest against borrowing more than you need. It is logical and there are other reasons as well.

12-month loans are expensive

12-month loans can be expensive. It is not just about your on-time payments. It is rather about how much you pay as interest. There is no point in borrowing extra money when you do not need it as you have to pay interest on that extra amount too. You are simply adding to your expenses.

Bear in mind the interest rates you will be charged. Interest rates are, in particular, slightly high because of fixed monthly payments. They will be even higher when your credit rating is poor. Lenders will presume you to be a risky borrower and, as a result, will charge high interest rates.

Not all lenders will be comfortable to lend you a larger sum

Compared to small loans, the lending sum is typically higher for 12-month loans. Since small emergency loans do not involve lending more than £500, they do not bother about hard checks. They will make a quick decision based on the financial details you provide.

But 12-month loans involve a lot of formalities. A thorough check of your credit file is mandatory to know your past track of payments. They might hesitate to sign off on your application when your payment record is not perfect.

Borrowing a larger sum is also risky for you. Interest payments will be higher. Chances are you struggle to make payments if your financial condition is not the same. You may lose your job or you may come across a major expense. You should have a backer to help you keep up with payments.

If you are using a 12-month loan for your start-up business, you will also have to submit a business plan. Your lender will unlike give the nod to your application if you do not have a backup plan to repay the debt in case your business fails to take off.

A smaller sum is ideal when you cannot arrange a guarantor

You should always seek to borrow a smaller sum when your credit history is not good at all because high interest rates will increase the debt size. Your lender might ask you to arrange a guarantor if you are looking to borrow a larger sum with a credit rating.

Arranging a guarantor is no plain sailing. Nowadays people are aware of the damaging consequences of acting as a guarantor. Loans for bad credit with no guarantor and no fees from a direct lender cannot offer you a larger sum. The approval chances are high when you borrow a smaller sum of money. However, you should be cautious about your repaying capacity. Based on the amount, you might be asked to repay in a lump sum or in two or three instalments.  

They may help boost your credit rating

12-month loans are aimed at boosting your credit score. Payments you make over a period of 12 months indicate your financial commitment. Lenders will report it to credit reference agencies. However, not all lenders do so because no lender is bound to do so. Ask your lender about it if you are concerned about fixing your credit issues.

However, small money cannot help boost your credit rating because the whole sum is paid in one go. It does not give enough clarity about your loyalty in the event of changing financial circumstances.

But there are a few lenders who let you pay down money in weekly instalments. If the repayment length is up to six months, you will certainly see a rise in your credit score.

No risk of losing collateral

A 12-month loan is not secured, but lenders may ask you to arrange collateral when your credit rating is less than stellar and cannot arrange a guarantor. Securing a loan lowers the risk of a lender because they can liquidate your asset to cover their loan amount in case you make a default. There is a huge risk of losing your valuable assets such as a house, car or any other precious item.

By borrowing a smaller sum, you do not need to secure your loan. There is no risk of losing your assets even if you fall behind on payments. However, making a default means you will end up losing your credit points. Interest penalties and late payment fees will be charged to your account. It increases the risk of falling into a debt spiral.

Ways to improve your chances of getting a 12-month loan

Here are the ways you should follow to increase your chances of getting a 12-month loan:

• You should keep your credit report perfect.
• Make sure you do not owe any debt.
• Your financial condition is strong.
• Apply with a co-applicant if your credit history is bad.

The bottom line

Borrowing a small amount of money will make it easier for you to repay. You can avoid paying high interest. Because a smaller sum will make it easier for you to repay the debt on time, your credit score might become better.

You can even build your credit history from scratch. Although it is easy to borrow a small amount, it still might be expensive. Be careful about your repayment potential.