It is a familiar scenario – pay day is two weeks away, an unexpected bill crops up and you are strapped for cash. Your finance options are limited and the only way out of the situation is to secure a short term loan. The decision comes down to applying for a payday loan or taking out a logbook loan. If you are unsure which way to turn and cannot decide between either option, simply read this guide for a full explanation of the pros and cons of both.
A logbook loan is a loan secured against your car. You must be over 18 (or in some cases 21) to be considered for a logbook ones. You must also be resident in the UK and be the legal owner of the vehicle, with full documentation as proof.
Logbook lenders will normally allow those who have paid off in full (or are close to paying off) their car, to borrow up to 75% of its value. So, for example, if your car is worth £2000, you may be able to borrow up to £1500. The logbook lender will keep your car's logbook for the duration of the loan as security. Repayment costs and the duration of logbook loans can vary. General advice is that you should pay back the logbook loan as quickly as possible to avoid added interest being accrued. A typical logbook loan can accrue as much as 460% APR interest per year.
Many people turn to logbook loans if they have bad credit or CCJs, as they feel that they have no other option - logbook loans are often not dependent on credit scoring or a person's income. This can leave people vulnerable to spiralling debts, high interest rates and large monthly repayments - which they may not be able to meet.
Payday loans are far more straightforward than logbook ones. Payday loans are often seen as a more legitimate and secure alternative to logbook ones, as they are only approved if a person has a regular income which ensures they can pay their debt off upon their next pay day. Much like a logbook loan, a person must be over 18 and resident in the UK to be considered for a payday loan. However, unlike logbook ones, applicants must earn at least £500 (take home pay after tax) per month and be in full or part time employment.
To apply for a payday loan applicants must have a bank account in their name and possess a debit card. Payday loan amounts can range from £50 to £1200, with a flat fee for lending normally applied. The fee incurred for payday loans is usually in the region of £25, per £100 borrowed. So, if a person was to borrow £500, they would pay back £625. However, applicants cannot borrow more than they will be paid on their next pay day, i.e., if you earn £700 per month, you could not apply for a loan of £1200.
Like logbook loans, payday loans are not always subject to good credit or credit checks. Those with a regular income who meet the stipulated criteria can still apply and be approved for a payday loan - even if they have a bad credit rating.
Often the peace of mind that comes with knowing that a debt will be paid in full at the end of the month (on your pay day), coupled with the transparent fees and not having to offer your car up for security, makes payday loans a much smarter choice for those looking for short-term financial solutions.
About the Author:
Vincent Rogers is a finance writer who writes for a number of UK businesses. For short term payday loans, he recommends Paydaypower.co.uk |
