Times are tough for the average household in the UK at present. Rising inflation has eaten away at our spending power, as the price of goods and services rises against stagnant wages. In July of 2022, the CEO of Lloyds Bank warned that around 80% of people in the UK had less than £500 in their current account, indicating the start of an affordability crisis like no other.
There have always been ways to subsidise income in difficult times such as these, though economics experts rightly warn against reliance on them. Personal loans, for example, can be a dangerous road to perennial debt if not managed carefully. But, on the other side of the coin, a shrewd approach to credit can be a powerful route to growing one’s position. What do you need to know about loans, the opportunities they can provide, and the risks they bring?
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Loans and Credit Score
The dangerous element of shouldering debt is the repayment terms. Invariably, any loans or potential credit arrangement involve an agreement to a rate of interest, which applies to the value of the debt over or after a certain time.
This interest rate can be impacted by several things, the chief of which is your credit score. Your credit score is defined by your history with borrowing and payment; the less reliable you are at paying debts or other financial responsibilities on time, the lower your credit score.
Lower credit scores mean higher risk – to which some institutions will respond by rejecting applications outright, and to which others will respond by offering high (that is, costly) rates of interest. All of which to say that getting on top of your credit score is the first step in unlocking access to friendlier rates of interest on credit.
Loans and Investment
But once you’re able to qualify for agreeable loans, what then? Access to capital is a key part of the equation for setting up a new business venture, a vehicle that you can use to grow your value and eventually generate profitable returns. In starting a new business, you will need a loan that does not require you to front assets as collateral – but with the loan, you can buy assets that will eventually return more than their value – and in the meantime work in your favour.
The nature of your new venture or career is entirely up to you, but suffice it to say that whatever you choose to fund should be well-researched. This does not need to become an FTSE-100 business, but can be a useful way to generate bill money on the side of an otherwise fulfilling career; it simply needs to outpace its operating costs and the interest rate of your loan.
The Risk
Any new business venture is steeped in risk – risk which is highly dependent on several variables. One variable might be the market outlook for your industry or trade, whereas another might be the global standing of the pound sterling as currency. But managing this risk can be simple, especially if you know your niche well.
Starting a business as a vehicle for investment and returns might seem like too many steps for generating income from the credit, but it is the safest route. Others might consider borrowing money to invest in the stock market, but this is more akin to gambling than it is to investment. The risk is too great and illustrates well the importance of a plan for borrowing money.
