How to find the loan that's right for you
In today’s financial markets the choice of financial products is overwhelming and daunting. Shall I go for the easy option of the Payday Loan? Shall I get a credit card? And what about a guarantor loan? What is best for me? Making the right decision is even more complicated if your credit is less than perfect.
Before you jump for the easy option of a payday loan it is important to consider the other options available to you.
Apply for a bank overdraft
Do you find that towards the end of every month you often run short of funds? You are not alone. The solution? Apply for a bank overdraft. This is the first step to your financial wellbeing. Sit down, put pen to paper and work out exactly how much of an overdraft you really need. Be realistic and generous. It is better to overestimate than to underestimate. Many banks offer free overdrafts so see if you can get one of these. If you do then it is the cheapest money you will ever have. If you have to pay for the facility you are still getting a good deal since the rates are reasonable. A word of warning. Many people underestimate their overdraft needs and inevitably creep into the unauthorised overdraft territory. This is fatal. When that happens the heavy charges and the onerous penalties start and before you know it you are on the slippery slope to financial ruin.
Apply for a credit card
If you need to borrow small amounts for a short periods a credit card may be a sensible option to consider. The advantages of a credit card are plain to see. They offer a period of interest free credit and free insurance on the items you purchase. Some credit cards come with other benefits such as a few months of interest free credit or even with 0% interest on any transfers.
If you credit record is less than perfect don’t despair. There are credit cards available for people in your circumstances but be realistic. The six month interest free credit may be out of the question and a month’s interest free credit may be the only available option. Credit cards are very useful tools in your financial wellbeing but come with dangers. Although a well managed credit card can improve you credit record within a few months, a badly managed credit card can destroy you credit record in no time. Try to pay off the balance by the end of the interest free period so that you do not incur interest charges. There are occasions when this is not possible due to unexpected commitments. Don’t worry, try to catch up the next month or the month after. If you manage to catch up you are doing well. However, if you find that your balance is increasing from one month to the next it is a sure danger sign that you are spending beyond your means. Do not be tempted to apply for another credit card. Do your budget and see what expenditure you can do without.
A Secured Loan
If you are a homeowner and have build up some debts a Secured Loan may be the solution. They are relatively quick and easy to arrange and the interest rate you will be offered are likely to be reasonable. Even if there is little or no equity in your property you should have no problem getting a secured loan, providing of course that you have not fallen in arrears with your mortgage.
Before you jump into the secured loan option you need to consider two issues:
- If you consolidate debts into a new loan it will probably extend the time it takes you to repay these debts.
- The new loan will be secured on your property. If you fall behind with your repayments your house will be at risk of repossession.
An Unsecured Personal Loan
If you are looking to borrow a small amount, typically less than £10,000 an Unsecured Personal Loan may be the answer. They are easy to arrange, can be completed on the same day and will satisfy a short term need for cash. However, interest rates for Unsecured Personal Loans are higher than those of Secured Loans and you need to have a relatively good credit score.
If you are looking for an unsecured loan and are aware that your credit records is not so great a Guarantor Loan may be the best option. You will be asked to provide a guarantor, somebody who will be prepared to sign with you and be responsible for the repayments of your loan if you are unable to repay it. Your guarantor can be a relative, a friend or even a work colleague, somebody that knows you well and is confident that you will repay the loan. Usually a guarantor should be a homeowner but we do have the option for a tenant guarantor as well.
Payday Loans have become very popular in the recent years because they are quick and simple to arrange. However, the argument has concentrated around the astronomical annual interest rates (APR). Payday Loans can be useful to satisfy an unexpected and irregular expenditure, such as an unusually large utility bill, unexpected repairs to a car and other such expenditure. They are not for regular living expenses and when the facility is extended to several months it becomes an expensive way of borrowing. The borrower should always bear in mind that a Payday Loan should be repaid on the next payday. If you find that you have taken several payday loans you need to review your budget and perhaps consider one of the longer term loans.
In conclusion, whatever loan option you decide to take it is important to bare one thing in mind. Make sure you can afford to pay it back. In the first sign of trouble it is important that you seek good advice. Speak to a free debt advisory service such as National Debtline before the problem escalates.