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LOANS AND IVA DEBT MANAGEMENT

What kind of Loan do I need?

There are a large number of different products on the loans markets, and finding the right one for your needs can prove difficult. So what is the difference between Payday Loans, Secured and Unsecured Loans, and Debt Consolidation loans? Who are they for and for what should they be used? Read our guide below or if you know what kind of loan you need; click on the links below to view our selection.

What is a Payday Loan?

A Payday loan is often referred to as a 24 hour loan, a fast loan or easy loan. Essentially it is an easy to get small loan that is lent on a short term, often 30 day, repayment scheme. It is often used to cover unexpected bills or for example an unexpected emergency such as a car repair. It is called a 'Payday' loan as the lender generally is expected to repay the loan when they're paid.

The loans are easy to qualify for, though generally proof of employment/payslips are needed.

What is a Bad Credit Loan?

A bad credit loan is designed for you if you have poor credit. You might have seen advertisements for Loans For People with Poor Credit Rating, CCJs or arrears. These mean that despite a bad track record, you will most likely be considered. Bad credit brokers allow individuals to enter their requirements - be it for a personal loan, a secured loan or other - and will scour the market on your behalf to find a deal. They will know which lenders are likely to accept you even if you have suffered a less-than-perfect financial past.

So if you have been refused credit before, don't give up: compare the market of bad credit or poor credit loan offers - you will probably find that there is a lender out there who can suit your needs.

What is IVA and debt management?

An IVA or Individual Voluntary Agreement is a contract or deal you make with your creditors (those you owe money to). It is for people whose only other option is to go bankrupt, and it offers an alternative to bankruptcy. Under an IVA the applicant will tell their creditors that there is no way they can be paid back all the money that is owed. The applicant explains that their only other option is bankruptcy. Under an IVA you are offering your creditors a deal: you'll pay back a percentage of money owed in settlement of the debt, or you'll have no option but to make yourself bankrupt.

A typical IVA works like this: you promise to pay a monthly sum of money over a period of time (usually between 1 and 5 years). The sum of money will invariably be less than the total amount you owe to your creditors. In return your creditors agree to take this lesser amount you are offering to pay as an end to the matter. Furthermore, they are not allowed to chase you for money any longer. As the law says, they take the lesser amount you are paying as “full and final settlement” of the money they are owed. Effectively it is a settlement that is beneficial to all parties – the creditors will receive a payment, and the applicant will not be made bankrupt.

What is a Logbook Loan?

Logbook loans are very similar to Payday loans, and have recently been placed in their own category. Aimed at people with poor credit ratings, CCJs and arrears, Logbook loans give car owners the chance to borrow money in the region of around £500 to £50,000. A Logbook loan is simply a secured loan - but instead of being secured against your home, it is secured against your car.

Logbook loans are easy to apply for, and most online providers can provide money within a short space of time - often within 24 hours.

What is a Consolidation Loan?

People often accrue debts through a variety of channels – EG credit cards, bank loans and other creditors. All these debts will have different interest rates and can be difficult to keep track of. A consolidation loan is a loan which is used to pay off these debts so that you are only paying the one debt consolidation loan, This way you can both keep track of your debts under one easy to manage loan and; more importantly will almost certainly save you money on repayments as the interest rate is generally very low.

What is a Unsecured Loan?

Don't be put off by the title of the loan, an unsecured loan (also know as a personal loan) is actually a less risky loan for the borrower as they do not have to put up a valuable asset (usually a flat or house) as collateral to receive the loan.

Effectively it is a loan which is supported by the borrower's credit rating; rather than his or her assets.

Generally an Unsecured Loan can be any amount between £1,000 and £25,000 and though the borrower can choose different payment periods; generally the repayment period is 5 years or less.

So which loan is best for you?

There are a number of ways to choose – the easiest way is by comparing APR (Annual Percentage Rate.) This is a good place to start. You should also consider whether the loan is fixed rate (IE the interest stays the same throughout the loan period) and a variable rate which may rise or fall with changes to the bank base rate.

Do I need a good credit rating to get a Personal Loan?

Generally the lender will look at your creditworthiness when deciding whether to give you a loan. That does not mean that those with a poor or medium Credit rating cannot get an unsecured loan, but generally the credit rating of the borrower may affect the interest rate on the loan.

Click here to check your Credit Rating for free

What is a Secured Loan?

A secured loan is a loan in which the individual borrower pledges a tangible asset such as a property or a car as collateral against a loan. The borrower will usually get a favourable rate of credit; as well as be able to borrow a larger amount than on a normal personal loan. This is because the lender has the legal option of taking the asset if the loan is not repaid. So the lender has security on the loan, and therefore acquires less risk.

Why should you consider a secured loan with this risk?

Generally there are three reasons a borrower would opt for a secured loan:

  • It is easier to obtain as the lender has security on the loan.
  • The borrower can borrow a larger amount of money.
  • The loan can be repaid over a longer period (up to 20 years, although a longer term increases total interest.

The loan can generally be used for any purpose, including paying all your other debts so that payments are in one manageable outgoing and with a more favourable interest rate.

Please remember though: THINK CAREFULLY BEFORE SECURING DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR LOAN.

 

Please Note: www.whichwaytopay.com is not authorised to give advice under the Financial Services and Markets Act 2000.

All of the Links, textural data, and image data is provided for informational purposes only.

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