You can’t expect the unexpected.
When life throws one of its many curveballs, your bank account can take quite a hit - and even struggle to recover.
Regardless of whether you’ve saved a security blanket away, or if you’re winging it on the day-to-day, unaware of what potential misfortune is lurking around the corner, you may need to find out how you can finance those unexpected expenses.
What Are Unexpected Expenses?
Unexpected expenses are usually big payments that aren’t factored into your budget. Think car breakdown repair, additional wedding costs, moving expenses that hadn’t even come to mind when you decided to up-sticks.
Nine times out of ten, these expenses will happen at the same time - because that’s how life works. Which means even if you could cover the price of your washing machine giving up entirely, you might not be able to buy the car a new set of brake pads as well.
What’s the Best Way to Pay for Unexpected Expenses?
Some people will have saved an emergency fund to cover these costs or dip into their savings. Others will rely on ‘putting it on the credit card’ or a payday loan as the solution.
Not having any savings to fall back on is, unfortunately, extremely common. Everyone’s in the same position.
More than half (53%) of 22-29-year-olds had no money saved in a savings account or an Individual Savings Account (ISA), according to the Office of National Statistics. Only 67% of 35-44-year-olds have more than £100 in savings.
Many are forced to find another way of sourcing the money - by whatever means necessary. Suddenly a high-interest credit company holds all the power and they’re often ready to prey on the vulnerable. No questions asked.
Sometimes, sticking an unexpected payment on the credit card - provided that you’re not maxing out your credit and you’re able to comfortably make the minimum repayments - is an effective way of splitting an unexpected cost across.
Other times, it’s an expensive solution that can end up becoming even more costly with high-interest fees and penalties for missed minimum payments. The average credit card interest rate in May 2019 increased to a whopping 19.99%, with the average UK household owning £2,653 worth of credit card debt. There are hundreds of companies out there, offering short-term-solutions, that thrive off financial vulnerabilities.
Similarly, Short-term and personal loans are designed to step in when things get out of control. They rely on the unexpected expenses to all fall at once, forcing your hand towards applying.
How Do I Apply for a Personal Loan - And Should I?
Sometimes there’s no other option but to take out a personal loan to pay for unexpected expenses.
Research is paramount. Make sure that more than being able to afford the repayments, they don’t significantly alter your quality of life when you do.
According to the Money Advice Service, over a year, the average annual percentage interest rate of charge (APR) could be up to 1,500% compared to 22.8% APR for a typical credit card. So, you need to make sure you can afford to pay it back within the terms agreed or as quickly as possible.
At Leap, as well as pushing for competitively low-interest rates, we have a number of checks in place to make sure you’re in the best financial position to afford the peer-to-peer loan you have requested.
Our mission is to provide fair financial support to both borrowers and investors. So, in order to prove you’ll be able to afford the loan we look into the following areas:
- Credit checks - we perform credit-bureau assessments on all borrower applications.
- Affordability checks – we assess a borrower’s income, expenses and levels of debt.
- Identity checks - we use sophisticated software to verify a borrower’s identity.
Unexpected Expenses: Key Takeaways
- It’s common for UK residents to have less than £100 in savings. More than half of 22-29-year-olds haven’t saved at all. It’s unlikely you’ll have budgeted for unexpected expenses.
- Those who are vulnerable to financial shock and likely to fall prey to high-interest short-term solutions.
- At Leap, our mission is to provide comparatively low-interest rates, once it’s clear you’re in the best financial position to afford the loan to avoid any additional costs to you.
Go ahead and check out our hassle-free loan calculator now to discover the best interest rates we can get you.