Excite

Which type of loan is best for you?

Borrowing money can be a nightmare if you’re trying to get your hands on a few thousand but it’s not as much trouble if you need a short-term loan to cover some essential bills. Everyone borrows money from time to time; even the mega-rich have to borrow sometimes when they don’t have the money to pay essential charges from those nice people at the tax office. Borrowing comes in all shapes and sizes so let’s take you through the basics.

    Image CC0/ geralt/ Pixabay

To get a loan you’ll need to go through a credit check and gain approval from a bank or similar lender. You should check your credit rating with the three credit reference agencies in the UK – Equifax, Experian and Call Credit before applying for a loan. You can get your credit score for free from each of them and a monthly subscription can be taken out if you want to review your credit report. Don’t be fooled into thinking that your credit rating with one agency will mirror those with the others. As each has a different set of criteria to rate you on, it’s possible for one to list you as an excellent credit risk and another to present you as a good to average person to lend money to, so check them all.

If you’re going to opt for a loan, make sure you go through a soft search before trying for credit. Lenders will ask you a series of questions that help them to determine if a loan application will go through or not. The beauty of this type of search is that it doesn’t affect your credit rating. If you’d like to find out for yourself, search online for a loan eligibility calculator which is a similar tool so you’ll have an idea of how lenders will see you before you approach them.

Credit Card

For a long time, credit cards were seen as a bad form of credit because they can generate debt but there are lots of advantages to having a credit card, and there are some things that are far harder to access without a credit card. Car and van hire is possible without a credit card but a card makes it easier as hirers view those with a credit card as less of a financial risk. A credit card is also the best way of purchasing online with peace of mind as the card provider will pay you back if you bought something from a firm that folds before sending you the product you paid for. According to the Section 75 of the Consumer Credit Act 1974, the product you bought needs to cost between £100 and £30,000 to qualify for this form of protection.

Overdraft

An overdraft is an easy loan to get but a hard one to repay. It’s soon ignored and rarely settled, and it creates monthly charges that most account holders overlook because they’re paid automatically from your bank account. In the UK, the average annual interest for an overdraft runs at 14.1 percent. While that doesn’t sound like a lot compared with other loans, when you weigh it up the banks do far better out of this type of loan than the consumer. Each month, the account holder clears the loan when their wages come into the bank and then they re-borrow the money as the month goes on and their bills go out.

Payday loans

If you’re the type of person who troubles his friends or family for cash when you’re in need of essentials, you’re the sort of person who should consider taking out a payday loan. These short-term loans are widely available and quick to get. Most providers give at least 30 days to pay the loan, which is paid back automatically through a continuous payment authority (CPA). This allows the lender to take the money from your bank on an agreed date, which is normally the day you get paid by work as you’d expect from the name of the loan.

This type of loan isn’t exclusive to the UK where firms like Wonga and QuickQuid operate. Americans can get cash advances from firms like Advance America, and in Germany, Vexcash offers this kind of short-term credit that allows customers to receive their money within 24 hours and keep it up to 30 days. Each country has different financial regulations governing this type of loan but the fact that payday loans exist across the globe suggests that the need for immediate money isn’t just a British thing.

Money Advice Service

Whether you opt for a loan, a payday loan, an overdraft or a credit card to fix your money problems, you should get some advice before you take the plunge. The Money Advice Service offers free and impartial advice to anyone who gets in touch with them. They won’t judge you or your financial circumstances so call or web chat them with your questions and you’ll get an honest and insightful response.

United Kingdom - Excite Network Copyright ©1995 - 2018