Three dangerous ways to borrow
If you're desperate for some extra cash, make sure you avoid these risky borrowing options...
With lending criteria becoming tighter over the past year, if you've got a less than perfect credit history, you could be finding it difficult to borrow from your local high street bank.
The trouble is, when times are hard, we all need more money. And unfortunately, this means you could be tempted to choose a borrowing option that turns out to be a big mistake.
Here are three of the worst ways to borrow:
In a nutshell, logbook loans are loans secured against your car. Certain companies, such as the imaginatively named Logbook Loans, will lend to anyone who owns a car and won't carry out credit checks. These companies lend you a percentage of the trade value of your vehicle.
This can be a really expensive way to borrow money and although it can seem like a quick and easy way to get some extra cash, don’t do it. Logbook loans companies aren’t regulated by the FSA – and they’re not under any obligation to comply with the FSA’s fair customer treatment guidelines.
Payday loans are cash advances on the salary you're expecting at the end of the month. Again, these can be tempting if you need cash in a hurry as it doesn't take long to apply. And again, no credit checks are carried out.
Typically, you can borrow up to £1,000, although some lenders will only allow you to borrow up to £750. Most lenders will charge you around £25 for each £100 you borrow - which can soon add up. If you borrowed £500, for example, you'd end up paying back £625. And that's providing you pay it off in the first month!
Pawnbrokers allow you to borrow money, while you leave something valuable behind as security. You'll need to sign a credit agreement and you'll be given a receipt to prove you own the item. No credit checks will be carried out.
Once again, you'll be charged a hefty rate of interest on the loan and you risk losing your 'security' if you can't repay the money. Find out more in The lowdown on pawnbroking.
Should you really borrow?
If you’re considering borrowing one of these three dangerous loans, there’s a good chance that your finances need to be sorted out. If you’re facing a big debt crisis, you can get some free debt advice from charities such as National Debtline and the Consumer Credit Counselling Service.
And if you’re not budgeting, start now! If you set a budget and monitor how you’re doing against that budget, you’ll probably start spending less. We think that our Money Track tool is the best budgeting tool out there, so check it out!