Obtaining a personal loan is one solution for solving a wide variety of financial concerns. The terms and conditions will vary by lender, so always be sure to read the fine print before agreeing to this form of financing. In general the loans issued to borrowers can be used to pay off multiple debts, catch up on electricity and other utilities as well as to protect against repossession of a car when you cannot make your payment for a couple of months. There are many possible uses of these funds and it can help you preserve your credit rating during temporary financial hardships.
An Advance Salary Scheme may be issued by employers to help employees that need cash to cover a short-term emergency. While they are not issued by all companies, this should be something that can be explored with your employer. The salary advance is a type of loan that must be repaid by employees as soon as possible. What will usually occur is the employers will typically withhold a portion of future salary payments to repay the funds.
Short Term Borrowing from Payday Loans
Payday loans have been turned to by a high percentage (as high as 10% by some estimates) of UK citizens, and the use of them has continued to increase. They are used by people who need short-term cash. However, these carry high interest rates when annualized. There is also the risk of entering into a never ending cycle of borrowing funds. While approval rates for most payday loans are higher than other forms of financing, you normally have cheaper options for obtaining any needed cash. It is also very important for people to pay these off as soon as possible.
Incredibly high rates are a shared feature of payday loans. This comparison of payday loan rates shows just how high costs are for these products. The popular Wonga product featuring a 5,853% representative APR is not even the highest rate that was previously allowed. The Financial Conduct Authority instituted stronger regulation in 2015, and now requires lenders to apply for licenses and pay an annual levy.
Before using a payday lender, look into the alternatives. Every borrower should know the risks associated with borrowing cash for the short term from a predatory lender. After all, a payday loan may have very high interest rates, fees, short payment terms, and other costs associated with it. Households in the UK have many other options available to them first, ranging from credit unions to council schemes as well as other lenders. Find details on payday loan alternatives.
Borrowers who lack the strength of credit to apply for unsecured products can gain access to funds if they can find someone to sign for the account. Guarantor loans are made when another person with good credit vouches for the applicant. Rates are a much more reasonable 49% APR on average. If the borrower defaults, the guarantor will be required to repay the balance.
Applicants with poor credit might experience higher acceptance rates through logbook loan applications. Rates can still be much higher than comparable loan refinance offers. A rate comparison shows just how much variance exists between competing products.
Banks and Lenders
Banks are generally accepted as the primary source of borrowing for most UK citizens. The loan products issued by them are highly regulated and interest rates and any other fees are transparently posted. Borrowers with good credit can expect to have a multitude of options from many banks with a wide variety of interest rates. If you have poor credit, then most lenders will either deny your personal loan application or charge a high rate of interest.
Borrow from Credit Unions
Nonprofit banks are known as credit unions. These financial services companies are owned by their members, so rates tend to be lower than their publicly traded banking competitors. Getting a personal loan through your local credit union can often be one of the cheapest borrowing options that you will have, with some co-ops charging as little as 1% monthly.
Illegal lenders are often turned to by desperate borrowers who cannot gain approval from other sources. However, these loans carry oppressive interest rates and are completely unregulated. Obtaining cash from a loan shark can carry safety risks as well. For these reasons, you should always confirm that a lender is authorised by the Financial Conduct Authority. Call 0800 111 6768 or check the Financial Services Register.
Government Issued Loans
With the central government cutting back on social benefits and adjusting existing or creating new programmes, people on a low income are facing changing options when it comes to borrowing money or getting the help they need. One way for households that benefit from the Universal Credit to receive funds for their bills is through budgeting advances, and this was created as loan that has a zero percent interest rate. There are criteria that need to be met by applicants, but the money can be used for the payment of a number of bills or housing expenses. Find more details on the Budgeting advances for Universal Credit recipients.
The government is becoming more involved in providing households with lower cost sources of credit. They are trying to help families break the cycle of turning to more expensive sources of financing, such as a payday lender. An increasing number of councils both at the district/borough and county level are offering their residents interest free loans for paying either emergency bills or housing needs, such as a rent deposit. The funds provided to borrowers often come with additional support services, such as enrollment into budgeting workshops that are held by credit unions and placement into debt management programmes. Find places to turn to for loans issued by councils.
UK personal loan products are highly regulated, yet illegal sources of financing still persist. It is important that you avoid predatory lenders if you decide to borrow money to help pay rent, utilities or any other necessity. The right loan can help you get through a temporary financial crisis and preserve your credit rating.