These are targeted at borrowers with a poor financial history and the balance of the loan is secured against the value of the borrower’s vehicle.
As with all financial options, they have their advantages and disadvantages and to help you make an informed decision regarding this type of finance we have drawn up a shortlist of pros and cons.
No Credit Check – Many lenders do not complete the requisite pre-agreement checks during the application process
Unrestricted Use – Can be used for almost anything (i.e debt consolidation, repayments, holidays etc)
Available Quickly – The application process is quick and simple. If successful the agreed amount is often available within 24 hours.
Large Sums Available – Depending on the value of your vehicle, you may be able to borrow a significant sum of money
Your Vehicle Will Be At Risk – Because this type of finance is secured, you will be required to leave your vehicle’s V5 document with the lender. This will remain with them until all outstanding payments are made.
High-Interest Rates – You may ultimately repay far more money than you borrowed due to the very high APR.
3. Payday Loans
Payday lending specifically targets borrowers who believe that their financial options are limited.
Designed to be repaid on the borrower’s following payday with the payment being collected automatically via a CPA (Continuous Payment Authority).
Easy Application Process – One of the primary benefits is the fact that the application process is so quick and simple.
No Credit Check – Probably the main reason that people choose this option is the fact that lenders rarely complete the requisite pre-agreement checks on the ability of the applicant to make their repayments. Assuming you can prove that you are currently employed, there is every chance your application will be granted.
Available Quickly – A successful application can result in the agreed amount being credited to the borrower’s account within just a few minutes.
Unsecured Loans – No security or collateral is involved.
Short Term Solutions – They should NEVER be viewed as a long-term option. Failure to repay as scheduled on your next payday can result in costs quickly spiraling out of control.
Extremely Expensive – The convenience of the application process should never outweigh the fact that this hugely expensive form of borrowing money often comes with an attached APR of well over 1000%!
Targeting the Vulnerable – Typically borrowers are seen to be in a desperate situation and lenders often seek to exploit this situation.
The Independent recently took an in-depth look potential consequences of borrowing money in this way in the following article:
Turning to family and friends can be the ideal way to work through a financial fix.
Because of the potential to damage long-term relationships with people that are close to us, this option should be explored thoroughly before making any decision.
Low Risk – You have no concerns that asking your friends or family will leave a negative impression on your credit record if they turn down your request.
Cheaper Option – Friends and family are highly unlikely to charge you an extortionate rate of interest.
Flexible Repayments – Rather than having your lender dictate the repayment terms to you, a simple discussion can result in a repayment schedule that suits both parties.
Feeling Obligated – It is possible that because of your relationship with family and close friends, they may feel obligated to accept your request when they may not be in a position to comfortably lend you the money.
Damaged Relationships – Should you fail to repay the amount which you have borrowed or begin to miss payments, long lasting damage may be caused to the relationship.
5. Guaranteed Loans
These can be the perfect option for anyone who wants to help a friend or family member but cannot afford to lend them the money personally.
They have been designed to utilise the presence of a third party who will be put in place to ‘guarantee’ the repayments should the borrower fail to make payments as scheduled.
Cheaper Option – The cheapest of the formal ‘bad credit’ options and are often available at just 10% of the cost of other alternatives.
No Credit Check – Because of the presence of the guarantor (they must have a good credit rating), lenders are prepared to look beyond the rating of the borrower.
Significant Amounts Available – Often available in amounts of up to £10,000 ensuring they are ideal for a variety of purposes.
Suitable Guarantors can be Difficult to Find – Not everyone will be willing to sign up to guarantee repayments because of the responsibility that comes with the role.
Guarantor Must Have a Good Credit Rating – The guarantor must have a good rating and fulfil a number of criteria in order to become eligible.*
Potential Damage to Relationships – As with borrowing from friends and family, a failure to repay the amount borrowed can cause significant damage to the relationship between borrower and guarantor because of the prevailing consequences. (i.e the lender pursuing the guarantor for the outstanding repayments).
*The guarantor criteria will vary from lender to lender.
Would I pass a credit check?
Unsure if your credit rating would leave the cheaper loan options out of reach? A visit to the Checkmyfile website offers easy access to the UK’s only multi-agency credit report.
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Safe & secure UK website established in 2015
Representative APR: 49.7% (variable)
Rates from 43.1% APR to 1333% APR. Minimum Loan Length is 1 month. Maximum Loan Length is 36 months.
Representative Example: £1,200 borrowed for up to 75 days. Total amount repayable is: £1506. Interest charged is 0.34% per day, amounting to £306, annual interest rate of 124% (variable).
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