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Bank Loan Charges and Payday Loans
While some of us have superior money management skills, with emergency funds always on hand and thus, never need to make an emergency loan, the rest of us arent so skilled. When somebody gets hospitalised or the house needs major repairs, we ordinary mortals usually need to take out a loan.
And when that happens, where do we go to? Do we get bank loans or payday loans?
Bank loans and bank charges
Although a lot of us are not fans of bank loans, there is an advantage to it: You do not need to repay the loan all in one blow.
If the amount you need to borrow is going to drain your next pay cheque or your next five pay cheques a bank loan definitely makes more sense.
The disadvantages of bank loans, however, are the following: First, approval takes time. These are not same day loans. Second, you may not meet the documentary requirements. Third, since you are being charged monthly, the total interest rates are generally higher than payday loans (presuming that you are able to pay your payday loan in full on its due date). And fourth, the charges are not always transparent.
What charges are you likely to meet, for instance?
1. Late fee. If you are late in paying your monthly fee, you will probably be charged for this. 2. Monthly service fee. This is a fee the bank charges you for the privilege of having an account with them. 3. Overdraft fee. This is charged whenever you exceed your credit limit, whether or not your overdraft was authorised. 4. Charge for exceeding authorised overdraft limits. This is an additional charge for exceeding an authorised overdraft.
Payday loans
If you need a same day loan, then payday loans are worth looking into.
For those who dont know what a payday loan is, its simply a cash advance on your salary. Often, the only security required is your debit card details; so that on the day your loan becomes due the money can be deducted from your bank account.
Should your loan be approved, the amount is automatically deposited into your bank account.
Of course, like all other things, these loans come with their own disadvantages: basically, it often happens that ones coming pay cheque is not sufficient to cover the amount one borrows. In that case, the borrower ends up renewing the loan instead of paying it back. This could amount to a higher interest charge than one might get with a bank loan.
If a borrower decides to pay back the loan by cheque and it bounces, the borrower would end up penalised by the bank also. In addition, the lenders, too, may have additional penalties of their own.
The good thing with payday loans, however, is that they are required by law to fully disclose the loan terms and interest rates, as well as all the fees involved. Compared to banks, the charges made by these lenders are definitely more transparent an enemy you know rather than an enemy you dont know, so to speak.
Secured Loans Are Based On Equity In Your Home
In financial jargon, the word Equity means the difference between the market value of your home and the debts raised against it. In other words, it is the unencumbered value of your home that is known as equity. The concept of equity is important for a homeowner since a loan can be raised against the equity in your home. Many lenders offer a loan to value ratio of eighty per cent only. It means that if your home has a value of £150,000, you can take a loan up to £120,000.
The credit rating that you have at the time of taking loan is very important. A good credit rating implies that your past conduct in the financial transactions was trustworthy and, therefore, lenders are likely to offer you a low rate of interest. By releasing the equity in your home, you can borrow up to £250,000. People usually take loan against equity only when they have large monetary requirements.
How borrowers are advantageously placed when taking secured loans?
In the past few years, the value of an average home in the UK has increased manifold. This reflects in the prevailing home prices; an average home costing more than £200,000 in the UK. The higher the price, the higher will be the equity in your home. Thus, the homeowners who want to borrow money are obviously better situated than those who are living on rent. In normal course, lenders give 80 per cent of equity in your home as a loan but this is not a fixed criterion and you may get more or less depending upon individual financial circumstances.
Bad credit loans and credit reference agencies
Secured loans are also available to those people who are having a bad credit rating. The credit rating is a numerical figure that is attributed to every borrower on the basis of his past conduct in the loan market. There are several credit reference agencies in the UK that gather information from various sources like the electoral roll, county court judgments and financial institutions. On the basis of the information collected, these agencies give a credit rating to every borrower. Lenders check credit rating to their satisfaction before sanctioning any loan to the borrowers.
Bad credit loans are available in two ways by providing a security or without it. However, lenders prefer to give bad credit loans only to those borrowers who can provide a security. This is usually done to cover the risk involved in giving loans to people who have dubious credit record.