With the effects of the credit crunch and the worldwide recession that followed still being felt some five years after the start of the economic downturn, we have all had to become much more financially astute and aware in order to make the most of our money.
As a result of the downturn, a number of new and innovative financial services products have come onto the market. Some are more familiar than others. Nowhere has this trend been seem more clearly than when it comes to the choice of loans available to consumers these days. The choice can at first appear somewhat bewildering, so we thought it might be a good idea to examine a few of the new loans out there, with a brief explanation of their purpose and suitability:
Payday Loans
Payday loans are probably the hottest topic when it comes to consumer finance at the present time. They are extremely controversial, to the extent that they have been banned in certain US states and have aroused much debate among politicians and even churchmen. Those who are in favour of these loans make the point that they are very often the only option for borrowers who have been excluded from mainstream lending by the attitude now being taken to loans by more traditional creditors like banks or building societies. Those against them argue they amount to little more than legalised loan sharking. Payday loans are only intended to be used for short term borrowing. The interest rates are extremely high, making them unsuitable as a long term borrowing option.
Logbook Loans
Logbook loans are a form of unsecured personal loan which is available to those who own their own car, unencumbered by finance. Although there is no security with these loans per se, the creditor does take the logbook for the vehicle in question as collateral should the borrower default. Unlike payday loans, logbook loans can be take out over a longer period, often several months or even years. They are also available for considerably larger amounts than is available with payday advances. Interest rates are still high, but not as high as with payday loans.
Debt Consolidation Loans
If you owe money to a number of different creditors, than it can sometimes be difficult to keep tabs on when each payment is due. This, in turn, can increase the risk of missing a payment, leaving you open to late or missed payment charges. A debt consolidation loan effectively replaces all these miscellaneous debts with one loan, making managing your finances considerably easier. Debt consolidation loans may be secured or unsecured, depending to a great extent on the creditworthiness of the borrower and the amount of the loan.
Interest rates are usually reasonable, and they can be a good way of helping improve your finances. Just remember, however, that in many cases to make the loan repayments more affordable you may have to extend the term of your loan, meaning you could end up paying more in the long run than if you has persevered with all the small loans you were previously trying to juggle.
Guarantor Loans
If you have poor credit you may find it extremely difficult to access funding on reasonable terms. You may have to resort to payday loans, which as we have discussed above are an expensive - and controversial - option. One solution to this dilemma would be to apply for a guarantor loan. Under this kind of loan you borrow the money and pay it back in the usual fashion, but to give the lender a greater measure of security a third party - usually a relative or family member - stands as guarantor. This means that if the principal borrower is unable or unwilling to repay the loan, the creditor can look for full repayment from the guarantor. Interest rates with guarantor loans tend to be more reasonable, reflecting the additional comfort available to the lender from the presence of a guarantor.
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