You need to be wary of the sub credit finance and personal loans market – high fees and interest rates can mean that a poor decision can turn out to be very costly.
To help you make the right decision we summarise here the four main types of personal loans.
Loan 1 – Specialist Credit Cards
Works like any other credit card
Limits can be fairly low – typically around £1,500
Conditions regarding applications, e.g.. missed payments and CCJ’s may need to be a year or more old
Can take a couple of weeks to be approved for the card (or not!)
APR’s typically 35 – 40%
These types of cards can be an excellent option if you do not need to borrow very much and if your missed payments were over a year ago. While they are more expensive than standard credit cards, the specialist credit card is the most cost-effective option here.
Loan 2 – Using A Guarantor
Typically from £50 to £10,000
Requires a friend or family member to guarantee your loan repayments
Interest rates typically around 700% APR for amounts ranging from £50 to £500, and 50% APR for amounts ranging from £500 to £10,000
If you cannot get the type of card detailed above,then a guarantor loan may offer the perfect alternative, although you will require a friend or family member to back you application.
Loan 3 – Doorstep Finance
Unsecured short term financial options where the lender calls at your home to collect the repayments
Fast cash available – typically up to £100 to £500
Repayment periods of up to a year
Can have high interest rates between typically about 275% and 550% APR
Doorstep finance is another option for amounts ranging from £100 to £500. Some people are put off by the lenders agent coming to their home, but a doorstep is a cheaper option than payday borrowing, especially if the loan is required for up to a year.
Loan 4 – Payday Finance
Unsecured short term personal borrowing options available online and high street specialists
Fast cash available – typically up to £50 to £500 in 24 hours
Short term options, designed to be taken out for only a few weeks – typically up to 4 weeks max
Can have very high interest rates upto 5000% APR
Payday finance has become widely used as they have been heavily advertised; whilst they offer a fast short term option, they are very expensive, and should be taken out with great care.
Rates from 12.9% APR to 1625.5% APR. The minimum Loan Term is 1 month. The maximum Loan Term is 36 months.
Representative Example: £1,000 borrowed for 18 months. Repayment of 17 Months at £87.22 and final repayment of £87.70 The total amount repayable is £1570.44. Interest amounts to £570.44, an annual interest rate of 59.97%
IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY