When you have good credit and you need a personal loan, your options are wide and varied. If you have bad credit and you need quick cash, however, that’s a different story altogether.
For people with bad credit, rejections are pretty common especially from major banks and high street lenders. Alternatives to traditional personal loans such as credit union and peer-to-peer lending also often require at least a fair credit score. That leaves people with a history of ccjs, defaults and even bankruptcy with little to no options at all.
To respond to the ever-growing need for bad credit loans, the lending industry in the UK came up with financial products such as payday loans and logbook loans. Even if you have bad credit, you are welcome to avail the loan since there is no credit check involved anyway. In fact, approval can be completed in as little as a day with this type of loans.
Now you might think these financial products are too good to be true and partly they are seeing that they are advertised with the promise of quick cash. But what most people don’t know is that these loans are quite controversial for their steep interest rates and hefty fees. Before you go ahead and resort to these loan options, it’s important to understand the cost as well as the risks associated with the loan.
Starting off with the highly popular and widely criticized payday loans, the financial product has been growing in popularity despite financial experts advising borrowers to avoid it by all means. But what exactly are payday loans?
Payday loans are unsecured personal loans you can get approved for within the same day you applied. Loan amounts range from £100 to £1,000 payable in 28 days or on your next paycheck. It is especially created for people with bad credit. No matter your credit score, you can apply for the loan but at a cost. The financial product comes with a hefty representative APR that averages at 1,000%.
Payday loans come handy for people with bad credit who have no property or asset they can use as collateral. Most borrowers use it to cover unexpected expenses such as car repair, overdue rent and the like.
If you are a vehicle owner with bad credit, one option you can look at is logbook loans. As the name suggests, logbook loans are loans secured against your vehicle. When approved for the loan, what happens, in essence is you handing over temporary ownership of your vehicle to your lender. The lender keeps the logbook document while you get to keep and still use your car.
Logbook loan lenders offer loan amounts from £500 to £50,000 at repayment terms from 12 months to 36 months. In most cases, the maximum amount you can borrow is equivalent to 70% of your car’s official trade value. Compared to payday loans, logbook loans are more flexible and cheaper at an average representative APR of 400%. Some lenders such as SimpleLogbookLoan offer lower interest rate to offer customers a more affordable solution to their financial troubles.
There’s just one downside with logbook loans. Because the loan is secured against your car, there is always the risk of vehicle repossession. In the event that you can’t repay the loan, lenders can recover your car to cover for your outstanding balance. But as long as you know you can afford the loan, logbook loans make a better option than payday loans especially in terms of flexibility and cost.