Though major lenders are bound to turn down your application when you have bad credit, there are now more alternatives for customers like you. Lenders today are offering loan products such as guarantor loans, payday loans and logbook loans. These types of personal loans are advertised as quick cash hence the ever increasing demand despite the high interest rates. But between the three products, which one is best for your needs? This guide will help you compare and peruse all three options so you can choose accordingly.
For loans of smaller amounts, payday loans maybe your best option. Payday loans are unsecured personal loans designed especially for people dealing with the consequences of bad credit. Allowed amounts you can borrow start from £100 up to £1,000 which you must pay in 28 days or longer depending on your lender. This product, therefore, is perfect for overdue bills, medical expense and other immediate monetary needs.
Remember, however, that the average Representative APR of the loan is at around 1,000% or more. For example, if you borrow £200 at a 60-day term with the rate per annum fixed at 365% and the APR is 1,058%, you'll end paying £299.08 by the end of the term. That's about 50% of interest rate that you'll pay for a £200 loan. If you want to know more about payday loans, head over to Money Saving Expert.
If you need a larger sum of money for your personal needs, guarantor loans can offer you loan amounts from £500 up to £10,000. Loan terms vary from 1 year to 5 years which you can set according to your budget. Like payday loans, guarantor loans are also unsecured but you'll need a guarantor to co-sign the debt agreement to be eligible and avail the product. There is also no credit checks involved so it's easier to get approved for and processing is ultra-fast as well.
In terms of cost, guarantor loans are cheaper with an average Representative APR of only 50%. For example, if you borrow £5,000 payable over 5 years at a 41.16% fixed rate per annum and the APR is 50%, you'll end paying £197.6 per month or a total of £11,859 by end of term.
If you still need an even larger sum than what guarantor loans can offer then logbook loans maybe the right financial product for you. Unlike the other options, however, logbook loans are secured against an asset which is your vehicle. To be eligible for the loan, you must have a car that is free or almost free of any financing. Depending on the official trade value of said vehicle, you can borrow between £500 and £50,000 payable in 3 months to 5 years.
The average APR for logbook loans fall somewhere at 400% but it can be less or more. For example, if you borrow £1,000 payable in 12 months at an APR of 300% and the interest rate is fixed at 96% per annum, you'll end paying £163.34 per month or £1,960 in total.