{"id":323,"date":"2020-12-11T10:08:41","date_gmt":"2020-12-11T10:08:41","guid":{"rendered":"https:\/\/www.mylenderloans.com\/blog\/?p=323"},"modified":"2024-08-21T05:02:46","modified_gmt":"2024-08-21T05:02:46","slug":"the-perils-of-taking-debt","status":"publish","type":"post","link":"https:\/\/www.mylenderloans.com\/blog\/the-perils-of-taking-debt\/","title":{"rendered":"The Perils of Taking Debt, Penalty for Late Payment"},"content":{"rendered":"\n<p>People when they start earning like to live on monthly\ninstalments in the UK as they rely on loans to fund most of their purchases. A\nsignificant portion of their monthly salary goes into serving interest on the\nloans they have taken to buy the latest smartphone or their favourite car. <\/p>\n\n\n\n<p>Credit card is one of the most significant sources of\nincurring debt for millennials in the UK, it is a useful instrument, but it has\nspecific issues as well. As long as you are paying promptly, it is all\nhunky-dory, however, if you miss any repayment by even a day, the interest on\nthat is exorbitantly high.&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<p>There are direct lenders available online who are\noffering <strong><a href=\"https:\/\/www.mylenderloans.com\/quick-loans.html\">urgent loans in\nIreland<\/a><\/strong> to even bad credit borrowers. These are unsecured loans for\nwhich you will not have to pledge any asset as collateral and nor you will have\nto produce any guarantor to represent you. <\/p>\n\n\n\n<p>There is an instant decision on these loans, and thus\nyou get the loan amount in your bank account on the same day you applied for\nthe loan, once it is approved. But, it comes with its share of problems for\nborrowers which are very high-interest rates. <\/p>\n\n\n\n<p>This blog will explain the disadvantages and\nopportunity cost of taking a loan. Here it goes:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Interest Burden<\/strong><\/li><\/ul>\n\n\n\n<p>The basic premise behind loans is that the lender\ncharges interest on the amount lent. Therefore, you end up paying a\nsignificantly higher amount than what you borrowed initially. <\/p>\n\n\n\n<p>The interest rate determines the difference in the\nloan amount and the total amount of repaid. This interest rate is even higher\nif your credit score is bad and thus you might have to pay the double of what\nyou borrowed if the loan\u2019s tenor is longer. Direct lenders quickly approve loan\napplications of even bad credit borrowers. However, they charge interest rates\nto the tune of 60-80% per annum based on your profile. <\/p>\n\n\n\n<p>Thus, the interest burden is one of the most\nsignificant demerits of applying for a loan, from the borrower\u2019s perspective.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Opportunity Cost<\/strong><\/li><\/ul>\n\n\n\n<p>Suppose you have taken a loan and you are paying\nregular monthly instalments for it. Now, were you not a borrower, you could\nhave invested this money somewhere and earn interest on it. This is the\nopportunity cost of taking a loan that you miss out on earning more money via\ninvestments. <\/p>\n\n\n\n<p>As a fiscally prudent person, you should earn interest\non your investments rather than paying interest on your borrowings. Now, since\nyou have taken a loan, your savings are going into monthly instalments and you\nare missing out on creating your wealth. <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Credit Score Deterioration<\/strong><\/li><\/ul>\n\n\n\n<p>The credit score is one of the key deciding factors\nfor lenders to give approval or rejection decision on a loan application. If\nyou have a substandard credit profile, then there are high chances that\nestablished commercial banks will reject your loan application. <\/p>\n\n\n\n<p>This will further exacerbate your credit score, making\nit difficult for you even to get urgent loans offered by direct lenders.\nBesides, if you miss payments by a few weeks during repayment then also your\ncredit score gets affected. This will debilitate your chances of getting loans\nin emergencies. <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Penalty for Late Payment<\/strong><\/li><\/ul>\n\n\n\n<p>You now know that if you miss any repayment deadline,\nthen your credit score is affected. On top of that, you will have to pay\npenalty charges also if you are a defaulter. This penalty amount is for the\ndelay in meeting repayment obligations. <\/p>\n\n\n\n<p>This penalty amount differs from lender to lender,\nsome charge it as a onetime fixed amount and some charge it on a pre-determined\npercentage basis. It means you have to repay the principal amount, you have to\nrepay interest component on that principal amount and you would have to pay\nlate fees and all this because you desperately wanted the newest Smartphone. &nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Fore Closure Charges<\/strong><\/li><\/ul>\n\n\n\n<p>Many lenders in the UK and even around the world\ninsert the foreclosure charge in case of early repayment of the entire loan. <\/p>\n\n\n\n<p>Suppose, if you got a significant amount from a\nbusiness deal and you want to settle the entire loan with one payment before\nthe tenor ends, then you will be asked by the bank to pay a charge for closing\nthe loan account early. <\/p>\n\n\n\n<p>You will benefit in this scenario from the excess\ninterest that will not be charged now but to compensate that you will have to\npay foreclosure charges. Moreover, you are back to square one. &nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Assets are Seized<\/strong><\/li><\/ul>\n\n\n\n<p>Loans are of two types: Secured Loans and Unsecured\nLoans, the former is backed by an asset, and the latter is not. A borrower has\nto pledge any of his asset with the lender as a security against the loan. This\nasset could be the papers of his house, his factory, equity shares he holds,\nhis car, the jewellery they own etc. <\/p>\n\n\n\n<p>Until you repay the entire loan amount, your assets\nwould be in the custody of the lender, and you will not be able to sell them.\nThis is another setback of borrowing money from a financial institution. <\/p>\n\n\n\n<p>The bottom line is that don\u2019t go for loans unless it\nis badly needed, borrow only if there is some emergency else avoid it. Buy\nthings you can afford and pay from your savings, don\u2019t buy things you cannot\nafford and for which you have to incur debt. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>People when they start earning like to live on monthly instalments in the UK as they rely on loans to fund most of their purchases. A significant portion of their monthly salary goes into serving interest on the loans they have taken to buy the latest smartphone or their favourite car. Credit card is one&#8230;<\/p>\n","protected":false},"author":1,"featured_media":326,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[37],"class_list":["post-323","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-urgent-loans-ireland","entry"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/posts\/323","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/comments?post=323"}],"version-history":[{"count":2,"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/posts\/323\/revisions"}],"predecessor-version":[{"id":852,"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/posts\/323\/revisions\/852"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/media\/326"}],"wp:attachment":[{"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/media?parent=323"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/categories?post=323"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.mylenderloans.com\/blog\/wp-json\/wp\/v2\/tags?post=323"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}