Making the right choice at the start of your borrowing journey can significantly affect the path it takes and indeed where you end up financially.
These days it is more confusing than ever with the various types of loan coming at you from every media angle, all promising to achieve similar results in fast, hassle-free ways.
It is important to know from the outset that each of these types of loan are very different in the way they behave from a financial standpoint.
Let's look first at what each of these loan types is in reality.
What is a logbook loan?
A logbook loan has a very transparent title, it requires you to put up your vehicle, or your v5 ‘logbook’ as the collateral risk for the loan itself.
Logbook loans are in effect, short-term secured loans and can therefore be requested with no stipulation on how the money is to be spent.
To this end, logbook loans are of course advertised as a minimal-risk short-term alternative to a payday loan and while the benefits of this particular comparison are certainly applicable, this doesn’t mean that they are the best choice of all the possible financial products that may be available to you.
When taking out a logbook loan, the loanee should expect to pay much higher amounts than some other forms of loan, often in excess of 100% as the typical APR, and should the repayments not be met, the loan company is fully within their rights to simply take your car.
That sounds bad enough, but it may not even end there. Any repossessed cars are then sold at auction and should the sale not attract enough to cover the outstanding debt, the loanee will still be responsible for the remainder of the loan, which can itself lead to further repossessions, significant increases in payment demands and immense pressure on your financial and of course personal wellbeing.
What is a payday loan?
Payday loans have built significant momentum in recent times due to their quick-fix nature, and over a very short period, they can be a fast way to fix an immediate problem.
But anyone considering a payday loan must be aware of the substantial danger of these loans should a loanee not be able to cover the repayments.
The interest is usually in the extreme, often reaching towards 6000% APR, which can rapidly turn into a life-changing debt spiral from a small simple credit enquiry.
We strongly advise anyone considering a payday loan to have a good look to see if there are any other alternatives first.
What is a credit card?
This may seem on the surface like a stupid question because we all know what a credit card does, it's that small rectangular friend that pops out and pays for things ahead of time.
But it is in actuality a type of borrowing and is therefore subject to the same demands of any loan, in other words, if you are unable to make the payments, things will quickly get out of hand, and as with all other types of lending you can end up legally in a difficult position if unexpected events mean you cannot repay.
What is a guarantor loan?
A guarantor loan is essentially a loan requiring someone who is prepared to stand as a backup for the loan, the ‘guarantor’ is themselves responsible for the payments should the loanee be unable to pay.
The primary advantages of a guarantor loan
When it comes to affordability, the guarantor loan boasts a much more customer-friendly APR, often in the region of just below 50% though this can be higher or lower depending on the lending company’s rules and your own circumstances.
It is also an excellent choice for those requesting higher amounts since there are much longer repayment terms available.
The risk element too, is also greatly reduced with guarantor loans, because there is always the backstop of your guarantor should you not be able to make the repayments yourself.
Some final advice
It is extremely important to make sure that your lender complies with all the mandatory lending guidelines.
The FCA or Financial Conduct Authority has a set list of best practice guidelines which must be rigorously adhered to by all registered lenders.
These encapsulate the legal fair treatment of customers and are an important safeguard for any would be loanee or guarantor.
If your proposed lender isn't registered with the FCA they are in fact operating without legal backing which is against the law, and we advise strongly against pursuing non-legal loans.
Research well and you should find the perfect solution to your loan needs and we are always on hand should you need further advice on the right product for you and your specific circumstances.
