Loans

In the current economic climate where loans are not so readily available as they used to be it is useful to know what your options are before applying for a loan.Secured LoansA secured loan is a loan that is secured on your property, and is available to people that have a mortgage on their property who also have enough equity left in their property. The maximum LTV (loan to value) allowable if you have a good credit history is currently 85% i.e. the total of your loan and mortgage debt must be less than 85% of the value of your property. One of the main benefits of a secured loan is that the lender is more likely to lend you money because they put a second charge on your property (behind the charge that your mortgage lender has in place) which makes the loan a safer bet for them if you default on your repayments. You can also borrow larger loan amounts for longer terms than you can with an unsecured loan.Unsecured LoansAn unsecured loan is a loan that is underwritten based on your personal circumstances, i.e. the lender will look at your income and your outgoings and they will also look at your credit record. Although the loan is unsecured the lenders are more likley to lend to homeowners than they are to tenants, for the simple reason that should you default on your repayments the lender will look to put a charge on your property in order to recover their money. Unsecured loans are generally available for smaller amounts usually up to £15,000 and for shorter terms they are also only available to people that have a good credit record with no CCJ’s defaults or any other type of bad credit problem.Guarantor LoansA guarantor loan is a loan that is offered to people that can provide a suitable guarantor (co-signee), the applicant does not need to have a good credit record as the loan is underwritten on the guarantor’s credit record. To be suitable the guarantor must be an employed homeowner with a good credit record. If the applicant defaults on the loan in any way the lender will go to the guarantor to reclaim their money, which is why the lenders are not too worried about the applicants credit record. The main benefit of this type of loan is that it is available to people who have bad credit, CCJ’s default’s etc, and can be used to help towards improving your credit record by maintaining your repayments. The main problem with this type of loan is the interest rate that is charged is usally higher than any other type of loan.Payday LoansA payday loan is a short term loan for a small amount of money usually up to £1,000 that is repaid in full on your next payday. To qualify you will need to be in full time employment and be paid directly into your bank account, you will also need to be aged 18 or over and have a debit card. They should only be used as a stop gap loan to get over any short term difficulty that needs to be dealt with before your next pay cheque. The interest charged is usually quite high, in most cases the lender will charge £25 for every £100 that you borrow. The biggest draw back is that you must repay the loan in full on your next payday, which is why you must have a debit card associated with your bank account, because the lender will automatically deduct the full amount from your bank on your next payday.Logbook LoansA logbook loan is a loan that is secured on your car log book. Loans are available up to £25,000 and to qualify your car must be free of finance and you must be aged 18 or over and the legal owner of the car. This type of loan is available no matter what your credit history but the interest rate that is charged is usually quite high (you should always check how much the loan will cost you before you sign the agreement).Personal LoansA personal loan is another name for an unsecured loan and as such is only available to people with a good credit history and for amounts up to £15,000 and for terms up to a maximum of 10Years in most cases the lenders will only lend for up to 5 year terms.Debt Consolidation LoansA debt consolidation loan is a loan that is taken out in order to consolidate any loans, credit or store card debts into just one loan in order to reduce your monthly commitments and can be secured or unsecured. When used wisely a debt consolidation loan can help to reduce your monthly commitments and get your finances back on track. However if you take out a consolidation loan it is always advisable to destroy your credit and store cards to ensure that you do not start accumulating your debts again. Failing to do so can often leave you in a worse situation than you were in the first place.

DEFINITION OF PERSONAL AND PAYDAY LOANSMost people feel that payday loans and personal loans are one and the same thing, but this is not at all true. They may seem similar, but they have many big differences which set the two options at opposite poles. One should consider the credit and the amount one needs to borrow to know what one qualifies for before one applies for it.Personal and payday loans are both useful when one requires an extra boost in finances, but this is the only similarity between them. The factors that vary are the term, cost and the amount among other different finances.DIFFERENTIATING FACTORSThe loan amount also differs when it comes to a comparison between the two. Most banks in the UK do not lend less than 1000 pounds for a 12 month period in case of personal loans.When it comes to cost comparison, personal ones are considerably cheaper with a maximum APR of 29.9% but one needs to have good and excellent credit. Payday loans can be usually more expensive, but it does not require any strict credit requirement.When it comes to loan term, personal loans offer around 5 years maximum as the loan tenure. Payday have a shorter term of around two to maybe four weeks that can go upto 12 months.When it comes to eligibility, personal loans which are offered by credit unions and banks have very strict criteria for eligibility. They generally require borrowers to have a good credit along with a fairly strong financial background. Payday loans seem much more flexible in comparison as lenders only require that the borrowers have a proper and regular source of income for qualifying.Personal loan lenders are online lenders, banks, peer to peer lenders and credit unions whereas payday loans are offered by those lenders who specialize in check cashing services and short term lending.PAYDAY OR SHORT TERM LOANSPayday loans, auto title loans and instalment loans have high fees and rates which could trap a person in a debt cycle. The person could be forced to take a second or even third loan just because they couldn’t pay the first one in the stipulated time limit. Alternatives to short term loans like local resources such as local charities, government agencies and non-profits offer relatively free services for financial needs and also help with rent, food and utilities for those people who are in dire need of it.One can also get payment extensions by talking with the concerned bill providers regarding an extension or a longer time frame or payment plan if one is behind on his or her payments. One can also take side jobs to catch up on the payment.COST FOR EACH OPTIONThe payment cost varies when it comes to payday loans versus personal loans. The interest rate that you will receive along with the terms is based on the individual’s credit history and if one has collateral or not along with the amount you borrow and the stipulated loan term.Payday loans whereas have APRs of three or four digits (100%-1000%). The actual total cost depends on the state of living of the borrower. APR represents the yearly cost which is important to note.DECIDING THE RIGHT TYPE OF LOANDeciding whether to opt for a payday loan or a personal loan depends on the amount of money that the individual intends to borrow and it also depends on the person’s credit. If one needs to borrow around 50 pounds to 1000 pounds, he or she can opt for a short term loan as personal loans require the person to borrow a minimum of 1000 pounds to around 2000 pounds.One must also consider the time factor. Short term loans offer faster times for the turnaround when compared to personal loans as it involves less approval process. Nowadays, more and more personal loan providers are shifting online hence they have almost the same processing speeds similar to short term loans like payday loans.Credit history is also an important factor. If the borrower has excellent credit scores, they are more likely to save money by obtaining a personal loan at lower interest when compared to a payday loan which will be available at higher cost.The total cost of the loan depends on the borrower’s monthly payments and also depends on the total amount to be repaid which depends mostly on the interest rate. One should always compare and consider various different options and check on online calculators offered by the lender to see which mode of loan is best suitable for your needs and how much one will need to repay.ALTERNATIVES AVAILABLEThere are many alternative options available to personal loans and payday loans which can be beneficial to the borrower. One can borrow a small sum or amount of money without the need for the borrower taking on a payday loan.Another short term loan is an installment loan in which the borrower repays the amount in a single lump sum. Thus, personal loans and payday loans for bad credit can be beneficial only when one carefully examines which loan type is best suited for his or her needs.