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finance: Loans

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Loans

A loan is one of the most common financial vehicles available to the average consumer. In fact, the bulk of our society would cease to function should loans not exist in some way, shape or form. Still, they can be difficult to understand and naturally, there are a number of unique types available. To gain a better appreciation for these instruments, let us take a quick look at some of the most common variants as well as a few of the variables to consider before committing to a specific type.

Secured Loans

A secured loan is the one that is often heard about the most. As the name suggest, an institution (known as the lender) will provide the individual (the borrower) with a specific amount of money that is SECURED against collateral. In other words, the value of one's possessions will often determine the amount of funds which are available. Common types of collateral are a business, a home, a vehicle or other tangible assets. These can normally be obtained by a bank and it is important to note that secured loans will require the borrower to have reasonably good credit. Also, the interest rates on this type are less than seen elsewhere; the collateral decreases the risk of a lender losing money.

Unsecured Loans

On the other side of the spectrum we come across unsecured loans. These are the opposite of secured loans for a number of important reasons. First, there is no collateral (security) involved. The amounts provided are generally much lower while interest rates can be quite high. This is due to the fact that this type of loan is associated with a higher risk of default. Unsecured loans are frequently chosen by those with no collateral or poor (or no) credit. Payday and log book loans are two examples of this category.

Payday Loans

As mentioned in the last paragraph, payday loans are a type of unsecured loan. This term has arisen from the common instance for a loan to be provided as long as one is able to show that he or she is still working and has a bank account. These can be risky, for the high interest rates may actually offset the financial liquidity provided by the loan itself. Also, there are many companies which are less than honest in reference to their conditions. Although payday loans may have been criticised during the last few years, the truth of the matter is that their quick approval time and liquid nature can help someone who is in drastic need of rapid access to funds.

Debt Consolidation Loans

There are times when one has taken out numerous loans in the past. In most cases, the interest rates will differ and the disparate amounts owed could become overwhelming. To avoid late payments and even a possible default, some consumers will choose to take out a debt consolidation loan. In essence, a third-party provider will group all loans into one single monthly payment. It is not uncommon for a portion of the debt to be written off. Interest rates will normally be consolidated as well; enabling the borrower to know exactly how much is owed each month. Debt consolidation loans are also great ways to help restore damaged credit. Students will frequently make use of these vehicles.

Log Book Loans

A final type of loan is known as a log book loan. In some ways, this is very similar to a payday loan. The main difference is that as opposed to having to prove that you are currently employed, you must show that you own a vehicle. So, your vehicle will be used as a type of collateral. Much like payday loans, the amounts offered are lower than secured loans while the interest rates will still be considerable higher. Although this loan can help with providing short-term finance, your vehicle may very well be seized should you happen to default.

Things to Consider When Choosing a Loan

  • The first concern should always be the amount of money that you require. Loans are not gifts and they must be paid back. Never borrow more than is absolutely necessary.
  • Secondly, would you be able to meet the demands of the lender within a reasonable time frame? Should you make late payments, your credit can be damaged.
  • Another major concern is the reputation of the provider. As mentioned previously, not all companies are scrupulous and some loans (especially payday and log book loans) can often come with hidden conditions. These may be crippling and it is not entirely uncommon for fees to suddenly seem to add up. Ultimately, the responsibility for securing any loan is up to the borrower. Approaching these vehicles in a responsible fashion will enable you to make the right choices at the right times.

Top Short Term Loans Offers

Company

Loan amounts

APR

Time period

Online access

Overdraft possibility?

Live Online Customer support?

Barclays

£7,500-£15,000

4.90%

2-5 years

Yes

Yes

No (only telephone)

Lloyds

£1,000-£25,000

4.90%

1-5 years

Yes

Yes

No (telephone only)

Halifax

£1,000-£25,000

4.90%

1-7 years

Yes

Yes

Yes

Vanquis

Proportional to collateral (bridging loan)

Variable APR

5 days to 12 months

No

N/A

No (telephone)

Santander

£7,500-£20,000

From 3.6 %

1 to 5 years

Yes

Yes (1.50% fee)

No (telephone)

Co-operative

£7,500 to £14,950

From 4.9 %

1 to 5 years

Yes

Yes (fee varies)

Yes (24/7)

Tesco Bank

£7,500 to £15,000

3.4 % (Clubcard holders)

1 to 8 years

Yes

Yes

No (telephone)

MBNA

£3,000 (credit card)

17.80%

3 years

Yes (24/7)

No

No (telephone)

Sainsbury

£5,000 to £7,499

4.20%

1-5 years

Yes

No

No (telephone)

Post Office

£1,000 to £25,000

4.40%

1.5 years

Yes (with account)

No

No (telephone)

Capital One

£200 to £1500

34.9 % (variable)

Revolving credit

Yes (dedicated account)

Yes

No (telephone)

Ocean Finance

£2,000 to £5,000

44.9 % (unsecured payday loan)

1 – 5 years (will vary)

No

No

No (24/7 telephone)

Virgin Money

From £3,000 (secured ,loan)

Variable

5 – 35 years

Yes

No

No (24/7 telephone)

Aquis

£250 to £1,000

29.8 % (payday loan)

No time frame; revolving credit.

Yes

No

No (telephone)

Data gathered from various comparison sources as well as individual company websites.  Information valid as of 6 March 2016.

FOR SECURED LOANS ONLY

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