Table of Contents
- Borrowing From a Credit Union
- Standard Payday Loans
- Cheque Based Payday Loans
- Logbook Loans
It happens to the best of us and it is certainly nothing to be ashamed of but when you are facing a bit of a cash crisis, where should you turn to get the best deal on a short term loan?
In this article I am going to walk you through the 5 main options that you have open to you. I’ll try to give an honest overview of their various pros and cons and guide you to the option that best suits your needs. I’ll try to include relevant information on rates of interests, fees and charges and give representative examples of how much you will repay over the term of the loan.
So, let us begin.
Option 1 – Credit Unions
Credit unions are not-for-profit organisations that typically cater for savers and borrowers in a particular geographical location or profession. They are now starting to offer short term loans to their members as an alternative to the more expensive options detailed on this page.
Some will require you to already be a member and have some level of savings before they agree to a loan, while others will carry out some background checks before lending to ensure that you are able to repay what you borrow.
The rate that a credit union can charge on a loan is limited by law to 3% per month which works out at an APR of 42.6% but typically they will be just 1% per month (12.7% APR).
We would always recommend that you start you search for a short term loan at a credit union and you can find out where you nearest one is using the aptly named website Find Your Credit Union.
Option 2 – Payday Loans
As the most well know and the most widely advertised of the short term loan options, payday loans have become a common feature in society but the have not been without their scandal. There have been warnings from many bodies responsible for family finance advice, primarily because of the very high typical APRs applied to the product.
There is a good reason for this though – the purpose of such loans is usually to cover a very short period where an individual requires quick extra cash and the loan is typically unsecured. The name “payday” comes about because that is what most loans are for – to cover outgoings between now and the next payday of the individual.
So how much will you pay in interest?
Well it depends on the institution you borrow from but one of the market leaders, Wonga, have a representative APR (annual rate of interest) of 4214% but because you can only borrow the money for up to 30 days the actual monetary values look more reasonable.
At the time of writing, a £400 loan from Wonga for a period of 10 days will leave you with £445.49 to repay in total over the term which is 11.37% in interest.
I believe that looking at things this way actually makes payday loans look a bit more reasonable.
Short term payday loans are best for: people who require fairly small loans at very short notice as decisions can be instant (mostly online with no need to fax documents) and the money can be in your bank account in as little as 15 minutes.
Option 3 – Cheque Based Payday Loans
There are a few operators in this market which differs quite significantly from more traditional payday loans. With cheque based loans, the borrower is required to send a copy of a cheque guarantee card along with a few blank cheques that the loan company use as collateral should you fail to repay your loan in the period agreed upon.
The benefits of this type of service is that you generally benefit from much lower representative APRs meaning the overall cost of borrowing is less.
For example, at the time of writing, Mister Cheque offer a representative APR of just 295.74% which is a great deal cheaper than the Wonga example stated earlier.
Some companies also allow you to complete the process without any credit check which can be great for those with bad credit ratings or CCJs.
The cons are clear though, because you have to physically post documents to them, the cash is unlikely to hit your bank account for at least a day (assuming you post them first class). The extra effort required on your part is reflected in the lower rates though.
Cheque based payday loans are best for: those who can afford to wait a day or two for the cash to hit their bank account.
Option 4 – Logbook Loans
Security statement: a Log Book Loan is secured on your vehicle.
This type of credit is provided to those who have a car or other vehicle against which to secure it. Since this loan would be secured against your vehicle, if you fail to keep up the payments, you are at risk of having your vehicle seized and sold to repay the remainder of your loan.
The downsides of this type of loan are clear – you can lose your car.
The advantages of this type of loan are that you can get a larger loan in comparison to the previous 2 payday options (up to £50,000) and that, because the loan is secured, you do not have to undergo any credit checks.
A representative APR for a logbook loan is 478.30% which is by no means the lowest rate you can achieve but with repayment windows ranging anywhere from 1 day to 48 months, you can at least schedule the repayment for further in the future if you should wish.
Logbook loans are best for: people who require slightly more credit that a typical payday loan can provide and that have a car that they can, if the worst comes to the worst, managed without. For those people who are unemployed or who have bad credit, this option allows you to get a loan thanks to the security you are putting up.
If you use your vehicle for work purposes of consider it vital to everyday life, a logbook loan is probably not for you.
Option 5 – Pawnbrokers
The pawnbroking industry has been seen on our high streets for many years but in recent times it has gone online too. Now you can complete the whole process online if you should wish with companies such as Borro.com.
The principle of pawnbrokers is that you exchange your valuables in exchange for a loan with a valuation agreed upon by both parties. The valuables are then held as security against that loan in the case of non-payment on your behalf.
With online services, you can pawn items ranging from jewellery and watches to art and even cars. Any item of significant value may be considered as security by the pawnbrokers. The security means that no credit checks are required.
Services such as Borro.com tend to lend on a month-by-month basis with interest rates dependent on the loan. At the time of writing, Borro.com are offering a 6% monthly interest rates on loans up to £999 which is an APR equivalent of just 85% which is much lower than other services reviewed in this article.
So the obvious pros are that the interest rates charged tend to be much lower than other short term loan options and there are no credit checks.
The biggest con is that you have to give up possession of your valuables for the period of the loan. And if you are unable to repay the loan then you will lose those valuables. You are also are the mercy of the pawnbroker when it comes to the valuation of your valuables and you might not get realistic market value for them.
Another con is that the items have to be handed over before the loan reaches your bank account so it’s certainly not as fast as some of the other options displayed here.
Pawnbrokers are best for: people who have valuable items that they are willing to put up as security in return for better rates on the short term loans. As with logbook loans, because of the security you are putting up in the form of your valuables, people with bad credit histories, CCJs or who are unemployed are still likely to be accepted. Furthermore, loans for people on benefits are not out of the question either.
If you want the lowest rates – speak to your local credit union
If you need cash fast – go for a traditional payday loan from Wonga.com
If you want relatively low rates and have something of value to use as collateral – pawnbrokers such as Borro.com are you best bet
If you want relatively low rates but can wait a day or two – a cheque based payday loan from Mister Cheque might be appropriate
If you want larger cash sums and have a vehicle to secure against – a Logbook Loan is the way to go