Bad credit scores may prolong the process of obtaining a loan, as lenders generally see poor credit scores as a risk to applicants. You must note that there are loans that really don’t need you to have a good credit record or credit score.
12 Month Loans: What Are They?
An unsecured loan that must be paid within one year is known as a 12-month loan, often commonly known as payday loans. There are personal loans on which your salary is billed. The EMIs are automatically paid from the borrower’s salary account.
They can be of immense benefit as they allow an individual to generate funds to fulfill their financial needs, and must then be paid back within 12 months or a year, and that it is the main feature that distinguishes them from other loans.
For example, if you were to withdraw 400 pounds. You will have to spend £56 a month for another 1 year or 12 months to resolve this loan because it is the form of a loan, whereby lending institutions allow people to withdraw a certain sum of money and break it into 12 installments for a period of 12 months.
Borrowers are required to ensure payments every month for taking advantage of small loans. Borrowers may not have to worry about keeping up with monthly payments as the sum of the loan is going to be limited.
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Features Of 12 Month Loans
Here are a few characteristics of 12-month loans
- There is a specified time limit of 12 months and no longer than that.
- It is a type of short-term loan, which means that when you get your next salary, you have to pay back the borrowed money.
- Such loans can be made digitally with little to no hassle.
- The distribution of 12-month loans is incredibly quick. You are bound to receive the loans the very same day that you applied for them.
- A good credit score is not a requirement for such a loan. This indicates that these loans could also be accessed by people with poor to no credit scores.
- 12-month loans are mainly characterized by low borrowing sums and higher interest rates.
- You should be 18 or older to apply for the loan.
- A secure income is also a condition for 12-month loans.
Benefit Of 12 Month Loans
These are a few of the advantages of 12-month loans
- These loans aid to fulfill the requirement for urgent funding.
- The 12-month loan application process is quick and non-problematic. The documentation needed for this is typically minimal when attempting to apply online.
- Acquiring a good credit score is not a prerequisite for these loans to be used, since these loans can often be used by people with poor credit.
- There is also no necessity for collateral, unlike secured loans.
- Loan repayments can be done either through offline means or online means
Eligibility Criteria
Although if you do not require a strong credit rating for 12-month loans, you ought to follow the other conditions set by the financial institutions, here are the criteria that have to be fulfilled if you want to use 12-month loans.
- The applicant should have a stable job and work.
- The monthly payment conditions set out by the lender must be met by you or by another applicant.
- You have to be 18 years or older.
- There is no need for a good credit score, but it definitely helps to simplify the work of obtaining a loan.
- There is no need for leverage
- Normally, lending institutions don’t need you to bring the guarantor along.
You will remember that when applying for a 12-month loan from a lending institution, the interest charged is higher than the repo rate of the Bank of England.
This can only be undertaken to compensate for the risk of borrowing the money you need.
There are several other variables that affect the rate of interest of the 12-month loan, and they may be different for every person, and the credit score is one of the principal elements.
In simple terms, if you happen to have a low credit score then the rate of interest levied will be high.
In addition to the credit ranking, there are some other significant factors influencing the interest rate:
Having a good history of loan repayment often acts for the benefit of the applicants who have been pursuing approval for the 12-month loan.
The high presence of defaults on credit history can lead financial institutions to impose higher interest rates.
The interest rate charged on the amount would be smaller if you or any other applicant were to work in a large corporation or a highly reputable enterprise.
Also Read: Credit Cards: What Are They And How To Use Them Effectively?
Conclusion
That was some of the basic knowledge regarding 12-month loans that you need to learn about.
Here’s yet another valuable piece of knowledge, even though you don’t need a strong credit rating for a 12-month loan, having a really good credit rating still means lower rates.
You can still improve your credit rating, use some of the credit score improvement services provided by credit unions, or perhaps utilize a credit builder loan to help you improve your credit score.