Why Loans Aren’t Always Good Loans

In an ideal world we’d all have enough money so that we would never have to borrow money from anyone.

If you’re the sort of person who likes to eat, sleep and live, however – you’ll have noticed that this isn’t an ideal world, and life inevitably costs more than we earn.

So, (and you can probably see where I’m going with this) it occasionally becomes necessary to take out some sort of loan. In the interest of keeping costs down, it stands to reason that you would look for the cheapest loan.

Pump the brakes though, here’s why the cheapest loans aren’t necessarily the best or most appropriate loans for you.

Let’s talk about security

You need to think about whether your loan should be secured or unsecured. If you’re
unfamiliar with this terminology, here’s the basic difference:

Secured loans are when you borrow money against a property which is already mortgaged. Sometimes they are known as second charge loans. If there is no mortgage on the property because you’re lucky enough to own it outright, the loan is known as a first charge loan.

Traditionally, these secured loans have been more expensive and seen as the last resort of those who, for whatever reason, could not borrow without security.

Since the recession, however, cheap unsecured loans have become harder to come by
because lenders have had to be more selective about who they lend to. As a result, secured loans may now be a more viable option, particularly for people who want to borrow large sums over longer periods.

By contrast, those wanting to borrow a relatively small amount of money over a short period of time might be better off with an unsecured loan, regardless of its rate.

Of course each have their benefits and drawbacks, and you should consider both before
signing on the dotted line.

Risky business

With secured loans, it’s all about risk. If you secure a loan against a property and you fall
behind with your repayments, you could ultimately lose the property.

You might think, by contrast, that an unsecured loan would carry less risk – and compared to losing your home it does. But falling behind with payments on an unsecured loan can damage your credit rating, which will make it harder to get credit in the future, if and when you need it.

Go for what’s suitable, not cheap

The laboured point I’m making is that you shouldn’t necessarily choose a loan based on the rate of interest it carries. A more important thing to consider is which loan product is more suitable for what you need, depending on the amount you want to borrow, the repayment period and whether you need to secure it or not.

This has been a guest post from Money Supermarket.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Benefits and Drawbacks of Short-Term Loans

Today’s post is a guest post from Pound2Day.

There comes a point in many people’s lives where money is tight and funds are short. Bank accounts are tapped.  Credit cards, for whatever reason, aren’t an option, and there isn’t a good place to turn.  Often, and hopefully it’s a one-time thing, people find that they need short-term influxes of cash. Short Term Loans are one option of getting access to money fast when needed.  Here are some of the benefits and drawbacks of short-term loans so you can make a more informed decision about your monetary needs and if this is an option you want to consider.

Benefits

An applicant can get money fast, often within a single day’s notice. If money must be raised (and I emphasize the word must) quickly, this can get you that money fast.

This is often an avenue for those with poor credit who need a short-term loan. Banks will charge those with poor credit huge fees and often refuse them outright because they’re seen as a high risk. With cash advance loans there’s practically no background check. Often, the only proof that you need is documentation of current employment.

There’s very little paperwork.   The application process, usually, only takes about 30 minutes for every person.

Drawbacks

These loans often have a much higher interest rate than you will pay elsewhere.  Fees must also be taken into consideration when weighing the overall cost.  Because of the increased costs, use of these should be the exception and not the rule.

While these can be convenient, these are often limited in the amount you can borrow.  This is actually good when you consider the interest rate, but if you need a higher amount to pay rent or a larger bill, a short term loan might only cover part of what is needed.

The terms vary, but these loans are meant to be paid back immediately or when the applicant gets his or her next paycheck, usually within a week. If a person fails to pay back the full amount within the agreed upon timeframe then it will result in huge penalty costs and can also adversely affect credit scores.

When the next paycheck does come, the money must be there to pay the loan back, and not spent or earmarked for other purposes.  Otherwise, this can send one on a downward spiral, and the cost could end up being double or triple the original amount, not to mention the potential for garnishment of wages. This could end up putting the person in a tighter spot than the previously were and should be avoided at all costs.

Consumers should also realize that short term loans have their benefits, but that they must understand the risk. If used responsibly, they can be a short-term solution. If not used with the right mix of forethought and understanding, they could end up doing more harm than good. Understand all of the facts and risks, and make sure you know how this will affect you beyond the point of getting the cash you need when deciding if a short term loan is right for you.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.