The interest rates for lending have been steadily falling in most places around the world, making it not only possible for people to borrow for expenses, but creating an environment where it has become common practice. Surveys carried out in different countries have shown that lending is on an upward trend in most aspects of people’s lives. However, this article would attempt to dissect and categorize the areas where the most amounts of loans are spent.
One of the most common types of loans take out by people is the Payday loan. It is essentially a short term loan that carries a relatively higher amount of interest for repayment. According to a major American Payday Loan company, 69% of their customers have borrowed cash from them in 2016 in order to meet their household expenses like paying bills, buying groceries and paying rent.
This information primarily accounts for borrowers who use Payday loans, however, it does not take into consideration the number of people who use other mean of loans to pay for expenses rather than short- term debt. Credit cards account for the majority of loans with respect to paying for expenses in the U.S. However, for being accepted for a credit card from an issuing company, a prospective borrower must have a good, or even a reasonable credit history to increase the likelihood of success. Most borrowers don’t have a credit history or else, have a bad one, so Payday loans act as a vital means of cash for them to keep up with expenditure.
In the U.S., about 16% of Payday loan customers borrow some money to meet an unexpected or emergency expense like repair of a car or medical treatment, states a report by Pew. According to another Manchester based financial research company in the UK, two of the most common reason people take out Payday loans in Britain are to pay for expenses as financial difficulties loom over the country and banks are becoming more and more vary about who they approve for a loan. The other reason that accounts for 9% of all loans taken out by Britons is boiler repairs and other home maintenance emergencies.
One of the major reasons of taking out loans is buying non-essential leisure goods and going on vacations. This trend is apparently common in both the U.K. as well as the U.S as explained by a prominent financial research company based in the London. Nearly 8% of Americans take out Payday loans to pay for something nice like a trip, an experience or purchase presents.
This type of lending is a secured, long- term loan that is usually taken out with a bank or some other financing company. According to a study about 24% of secured loans are taken out to pay for buying a house. This is an important and life-changing loan that spans decades so a good credit score is essential for securing a mortgage.
Car/ Vehicle Purchase:
One of the most common types of loans that are taken out is car- financing. Whether it is a new one or a used car, financing companies develop a number or re- payment packages for prospective buyers. This is also a type of secured loans and would require the applicant to have a good credit score for a reasonable re- payment policy. However, higher interest financing policies are also offered to people who have a poor or short credit history.
Paying for Overdraft:
The fourth most common reason for people to take out unsecured loans in the U.K. as well as the U.S. is to pay for overdraft fees. According to the U.K.s Money Advice Trust, majority of people who took out loans either from the bank or via a Payday loan company, have unknowingly drew more than what they had available in their bank account. If not repaid soon, the fines and fees could add up, therefore, borrowers tend to seek the help of Payday lenders for some quick cash.
According to one online survey conducted earlier this year in the U.K., 46% of homeowners would likely take out a mid- sized loan for improving their homes. Improvements like building extensions, repairing sections of the house or simply redesigning the look could cost a hefty sum of money and would more than often require some form of secured loan from a bank.
Majority of the reasons for taking out a loan can be avoided by ample planning or living within the means. However, even with most loans taken out in emergency situations are paid back within the required time frame. Alternative financing companies like Payday lenders fill the gap left by banks for lending money to prospective borrowers.