Category Archives: Personal Loans

CMA competition markets authority

Summary of the UK Payday Lending Market Investigation by the Competition Market Authority (CMA)

Just recently, the Competition Market Authority (CMA) conducted a payday lending market investigation (Click here to download the official report). Below is a summary of the findings as well as recommendations.

Overview

According to the CMA investigation, the average size of a payday loan in the UK stands at £260 and almost all loans are £1000 or less in value. The loans vary depending on repayment terms with most loans repayable in a month or less with a single instalment.

The average term of most payday loans in the UK is just over 21 days or three weeks.
In terms of growth, the UK payday loan industry grew the fastest from 2008-2012. During this period, payday loan lenders we issuing approximately 10.2 million loans per year valued at approximately £2.8 billion. Growth has been reducing since then. In 2013 for instance, payday loan industry revenues dropped by 5%. The market also contracted in 2014 with the number of new loans falling by approximately 27% between January and September 2014.

The year 2014 saw four out eleven major payday loan lenders, as well as many small lenders, stop offering payday loans. The market hasn’t recovered since following the introduction of Price Cap Regulation in January 2015 which saw many payday lenders unable to operate profitably under the new regulation.

In-depth CMA findings

The CMA payday lending market investigation reveals a lot of information on various aspects of the industry. Here’s what you need to know;

1. Payday loan usage (number of loans taken out per customer)

According to the CMA report, most payday loan customers take out many payday loans over time with the average lender taking out approximately six loans every year. In regards to borrowers’ lender preferences, most borrowers use two or more lenders.

2. Online vs high street borrowing

In regards to loan platforms, most payday loan customers today prefer taking out loans online i.e. 83% vs. 29% who take out loans on the high street. 12% of all payday loan users borrow using both channels today. On amount, borrowers borrow more online i.e. £290 compared to the high street £180.

3. Borrower loan application assessment

Most payday lenders today have developed computerised risk models that help them conduct thorough assessments on their client’s credit worthiness as well as their ability to repay the loan successfully. Borrower assessment has been and is still part of every lender’s loan application process. The sophistication of risk models, however, varies from one lender to another. In regards to loan application success, the number of loan applications turned down was above 50% for most of the major lenders back in 2012. The figure continues to rise to date as lenders become more cautious in the wake of the new FCA regulations.

4. Payday loan customer profile

The CMA investigation shows that the typical online payday loan customer in the UK has an average income of £16,500 while high street borrowers have an average income of £13,400. In general, most people who have been using (and are still using payday loans) in the UK earn less than the average income in the UK which stands at £17,500.
In regards to gender and occupation, most payday loan customers in the UK are male working in full-time jobs. They also happen to be younger (than average) and living in larger households.

Most payday loan customers also happen to have experienced financial problems in the recent past. According to the CMA investigation, 38% of all payday loan customers have a bad credit score/rating while 10% have been visited by a debt collector or bailiff. In a nutshell, 52% of payday loan customers have faced some debt problems in the near past. The number of people who repay their payday loans in full has also decreased over time.

It’s also worth noting that most payday loans are taken on Fridays at the beginning or end of the month. Most borrowers also seem to be under some financial pressure when borrowing leaving little room for assessing other suitable credit alternatives that may be available to them. In fact, less than 50% of all payday loan borrowers shop around effectively before taking out payday loans. The typical payday loan customer is also recurring. Repeat customers account for a majority of payday loan business. Most borrowers also take loans from multiple lenders mainly because of problems with existing lenders i.e. late repayment, outstanding loan/s, etc.

5. Overall Payday loan usage

In regards to overall usage, most payday loan consumers (53%) use payday loans to cater for living expenses like utility bills and groceries. 10% take payday loans to pay for vehicle/car related expenses while 7% take payday loans to pay for general shopping such as clothes and household items. Only 52% of payday loan consumers use payday loans to pay for emergency-related expenses. This is despite the fact that payday loans are actually meant for catering for emergency expenses.

Recommendations

The CMA investigation reveals some difficulties in the industry which need to be addressed. Luckily, the CMA has given recommendations for dealing with these problems. Here’s what needs to be done;

1. There is a need to boost the effectiveness of price comparison websites

Most payday loan customers don’t have the luxury of choice when taking out loans as revealed in the investigation. Since borrowers take loans under duress, better price comparison websites can help borrowers shop for loans more effectively regardless of the time constraints or other problems present when taking out loans.
Better price comparison websites will also create a perfect environment for competition which will, in turn, result in better payday loans in every regard from the pricing/fees/charges to variety. Existing price comparison websites have numerous limitations that make it impossible for payday loan customers to make accurate comparisons.

2. More transparency on late fees/overall cost of borrowing

The CMA also feels there is a need for more transparency on fees charged in the industry by different lenders. The Authority believes the FCA needs to take more action to ensure all lenders have a legal obligation to disclose all their fees/charges on previous loans clearly to allow effective cost analysis.

3. Cooperation between the FCA, payday lenders, credit reference agencies and authorised price comparison websites

The CMA also feels the FCA must cooperate with all industry players more so lenders, credit reference agencies, and price comparison websites to improve payday loan borrower abilities to search the payday loan market extensively without compromising their credit history.

4. Real-time data sharing

There is also a need for real-time data sharing according to the CMA. Such efforts will benefit both borrowers and lenders. When lenders are able to get real-time access to their clients’ credit information, they will be in a position to do better borrower assessment and in turn, avail the best possible terms.

5. Increased transparency on the role of third parties like lead generators

The CMA also feels there should be more transparency on the role played by third parties like lead generators, affiliates, brokers, etc. since most of them pose as actual lenders when that’s not the case. The CMA stresses the need for the FCA to do more to make sure borrowers know upfront if they are applying for loans directly or indirectly. This move will reduce instances of erroneous expectations since most third parties tend to overpromise or provide inaccurate information.

Summary

The UK payday loan industry is far from its peak in 2012. The number of payday lenders has reduced following the introduction of the price cap regulation by the FCA. Lenders have also become stricter today. Unscrupulous lenders may have reduced, but borrowers remain vulnerable even after the new regulation since most of them borrow under pressure. There is hardly any time to compare payday loan lenders effectively, and price comparison websites are doing very little to help. This explains why the CMA is calling for better price comparison websites among other recommendations like transparency on fees, real-time data sharing and cooperation between the regulator, lenders, credit rating agencies and price comparison websites. Third parties also need to be more transparent when promoting lenders to ensure payday loan customers make the best possible decisions when taking out loans.

Financial education is also important to reduce over reliance on short-term credit to cater for living and emergency expenses. Financial education is bound to improve the customer profile of the typical payday loan user.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.
How Has The UK Short Term Credit Market Been Revolutionised by The 2015 FCA Price Cap Regulation?

How Has The UK Short Term Credit Market Been Revolutionised by The 2015 FCA Price Cap Regulation?

Since the FCA introduced price cap regulation back in 2015, there have been changes in the short-term credit market.

The latest Social Market Foundation (SMF) report (Click here to download the official report) commissioned by the CFA (Consumer Finance Association) offers the latest assessment on the impact of price cap regulation on the short-term credit market in the UK with a special focus on cost as well as access to loans. The report contains information gathered from industry data as well as short-term credit consumers in the UK.

Considering 6.8 million UK households still live below the poverty line, a significant number of UK households rely on credit. Changing employment and work patterns as well as state benefit changes have also resulted in income instability which has, in turn, increased dependence on credit. Rising inflation and housing costs have also increased the need for short-term credit in the UK.

Let’s not forget the poor saving habits in the UK. A previous SMF research study shows that 40% of UK citizens have less than a week’s worth of income as savings. With this in mind, the health of the UK short-term credit market can’t be overlooked since most people with financial difficulties turn to short-term loans. Considering the FCA price cap regulation is the latest and most significant UK credit market event, how is the market now?

What has changed?

1. Cost of loans

According to the latest SMF report commissioned by the CFA and produced independently by the SMF, the cost of loans has fallen significantly. The latest industry data shows that the cost of loans has reduced by from 1.3% (in 2013) to 0.7% currently. In a nutshell, loans cost less now. It gets better! Loans are cheaper than the 0.8% initial cost cap set by the FCA which is an indication of healthy competition in the industry.

2. Default fees

Industry data also shows that default fees have fallen. The proportion of short-term loan on which borrowers pay additional over and above contractual interest has halved from 16% back in 2013 to 8% currently. In cases where loans are subject to default fees, the total amount of fees including interest charged after default has dropped from £45 to £24. However, concerns linger on whether the fees are still high considering they represent approximately 10% of the value of most short-term loans taken in the UK.

3. Borrower perceptions and experiences

According to the latest SMF survey, consumer perceptions have improved on affordability. Consumers are of the notion that short-term loans have become affordable. 56% of recent borrowers agree that short term loans have become more affordable. Only 43% of borrowers who took out short term loans before 2015 believed they were affordable. Although there are consumers who insist that loans haven’t become affordable, a majority of such opinions can be attributed to the fact that some borrowers assess affordability based on their own ability to service loans.

In regards to experience, most people (90%) feel short term loans are the most convenient source of short-term credit today. Some concerns have however been expressed on repayment. Approximately 20% of all recent borrowers today state that they have problems repaying short-term loans as planned or in time.

4. The size of the short-term credit market (Number of loans sold)

The latest industry data shows that the number of loans sold decreased significantly over the January 2016 to April 2016 period. The loans taken during this time were 42% lower compared to the same period in 2013. Industry experts attribute the fall to a decreasing number of lenders during this period. Many short term loan lenders exited the market between January and April 2016 after finding it extremely difficult to operate in the confines of the new price cap regulation.

5. Access to loans

The FCA had predicted that the regulation would exclude some consumers from the short term credit market more so, lower income individuals. This prediction is consistent with industry figures. The SMF report suggests that access has become restricted. An SMF survey shows that consumers are of the notion that it has become harder to obtain loans. 57% of all consumers who have taken loans before and after the regulation changes state that short term loans have become more difficult to access.

The SMF survey, however, shows that only 16% of people who have tried accessing loans before the regulation, not afterwards, have been denied loans. This is against 18% who haven’t bothered to take loans after the new regulation just because they thought they wouldn’t qualify.

Many consumers still find access to loans important for essentials or avoiding other borrowing channels such as borrowing from family members and friends. According to the SMF survey, 27% of consumers risk going without essentials if they don’t get access to short-term loans. The survey also reveals that 37% of consumers are forced to pursue other credit channels such as borrowing from family and friends if they don’t access credit despite this option being the least reliable and suitable for many.

The rest are forced to cut back on spending, misappropriate funds or rely on alternative or mainstream credit which comes at a higher cost. Some customers also resort to borrowing from unlicensed lenders when they fail to secure funding from licensed short-term credit lenders.

Summary

In a nutshell, the new regulation may have reduced the cost of loans and default fees as well as improved consumer perceptions, however, access to credit has shrunk, and the hardest hit borrowers are low-income individuals. Although the regulation stops exploitation by lenders, which was a huge problem especially in the payday loan industry, some borrowers are being forced into the hands of unlicensed lenders. This is contrary to the FCA’s previous conclusion that the new regulation would be a good thing to low-income borrowers.

The price cap appears to have reduced unscrupulous lending practices among licensed lenders, but there is an increasing number of borrowers turning to unlicensed lenders giving rise to worse problems. Unscrupulous (unlicensed) lenders don’t have to work as hard as before to attract borrowers since access to short-term credit has shrunk among the lower income borrowers. Short term credit lenders in the UK have stricter affordability assessments today which have reduced the number of loans being offered to individuals who are deemed high risk.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.
What Are The Best And Worst Ways To Use A Loan?

What Are The Best And Worst Ways To Use A Loan?

It’s always advisable to live within your budget, stay away from debt, etc.. However, there are some cases when it’s justifiable to take on debt. Sometimes it’s inevitable to take debt. When you have an emergency expense for instance (such as an unexpected medical or car repair bill), you may be forced to take a payday loan or any other type of short-term loan. It’s a bad idea to take up a loan if you don’t really need one. With that said, let’s get into more detail on the best as well as the worst ways of using a loan.

Best ways of using a loan

1. Starting a business:

It’s highly recommendable to take a loan and start a business. Business loans make the most sense because they are put into one of the most productive loan uses. Provided you prepare a solid business, it’s always a great idea to use your loan to start a business.

2. Debt consolidation:

You can also take a loan to help you manage your debt better. Managing debt can be stressing when you have many loans. Debt consolidation allows you to clear off multiple debts so that you remain with one manageable loan. If your loans have gotten out of hand, it’s a good idea to consolidate as long as you still have the capacity to service the resulting debt.

3. To build your credit score:

You can also take a loan to build your credit score. If you have a bad credit score that needs to be improved fast, taking a loan is a good idea. The benefits of having a good credit score are enormous. As long as you can repay your loan in time, there is nothing wrong with building your credit score by taking loans and repaying them in time. This tip works perfectly with credit card loans/debt.

4. To cater for emergency expenses:

As mentioned above, you can take a loan to cater for emergency expenses. Medical bills, car repair bills, roof repair bills among other kinds of bills may arise when you don’t have money. In such cases, you can take a payday loan among other types of short term loans to cater for those emergencies.

Worst ways of using a loan

Let’s turn to what you shouldn’t do with loan money. Ideally, you shouldn’t take in debt to spend on unnecessary expenses. Although the definition of ”unnecessary” expenses can vary from one person to another, here’s what you need to know.

1. Never take a loan for gambling:

Gambling is very risky. The odds are usually against you. There is nothing wrong with gambling with your own money if you really want to gamble. However, it is not advisable to get into debt because of gambling. In fact, you should avoid taking loans to engage in any activities whose outcome can’t be controlled.

2. Funding luxuries:

You should also avoid loans if you are taking them to fund luxuries i.e. buy the latest furniture, electronics, go for a holiday, buy a second home, buy new clothes/shoes. Most people get into debt because of taking loans to enjoy lifestyles they can’t afford. To avoid this mistake, fund luxuries using your own money. You can take a loan if you already have the money to fund luxuries. For instance, you may be waiting to get paid. Unless you are in such a scenario, avoid debt by all means. If you can’t afford something at any given movement, save up and get it later. You should, however, consider putting your money into better use i.e. funding income generating ventures such as a business.

3. Paying everyday bills:

It’s also a bad idea to get into debt every month to pay rent, energy bills, grocery bills, etc. You can take a payday loan once in a while to sort out expenses when you have some financial difficulties. However, it’s not a good idea to pay for everyday bills with debt. If you find yourself doing this, it’s time to adjust your lifestyle to match your income. It is possible to avoid short-term loans by living within your means and building a savings account.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.
How to Avoid Payday Loan Scams and Unauthorised Firms in the UK

How to Avoid Payday Loan Scams and Unauthorised Firms in the UK

The FCA has gone to great lengths to regulate the conduct of finance industry players in the UK. In an effort to protect consumers, the FCA has a guide that is bound to help you avoid being scammed and/or dealing with unauthorised firms.

The consequences of dealing with unauthorised firms are dire. For instance, individuals who conduct business with unauthorised firms aren’t covered by the Financial Services Compensation Scheme or the Financial Ombudsman Service in case anything goes wrong. To avoid losing your hard earned money, it is important to avoid unauthorised firms. Furthermore, most scams are orchestrated by unauthorised firms.

This leads us to a very important question; how do you avoid scams and unauthorised firms in the UK? Below are 10 important steps to consider according to the FCA.

Step 1: Don’t accept cold calls

You should treat cold calls with extreme caution to avoid being scammed or dealing with unauthorised firms in the UK. Ideally, you should not pick cold calls and if you do, hang up immediately. It doesn’t matter how attractive an investment sounds, most scammers cold-call potential clients. They may also email or text you. For this reason, never open or respond to unsolicited correspondence. It is possible to set protective mailing and telephone preferences to keep you safe.

Step 2: Check if the firm you are about to deal with is registered or authorised

This has to be the easiest but most overlooked way of avoiding scams and unauthorised firms. You shouldn’t deal with any firm that isn’t authorised or registered by the FCA. The FCA has a register (https://register.fca.org.uk/) that lists firms as well as individuals that are authorised or registered to conduct business in the UK. It is advisable to access the register directly from the FCA website as opposed to clicking links in emails for security reasons.

It’s also advisable to beware of registered firms which don’t volunteer adequate information to the FCA since firms aren’t obligated to provide a lot of information about their business. When confirming the identity of any authorised firm on the FCA register, ask for the FRN (Firm Reference Number) as well as the contact details. It’s also good to call the firm back using the switchboard number on the register as opposed to any direct line they may offer you. If you can’t find contact details or the firm claims the details are outdated, call the FCA consumer helpline (0800 111 6768) for help.

Step 3: Check the FCA list of unauthorised firms

FCA has a special list (https://www.fca.org.uk/consumers/unauthorised-firms-individuals) containing all unauthorised firms. To avoid being scammed, make sure you check if the FCA has blacklisted the firm or individual/s you want to conduct business with. The FCA list contains all firms as well as individuals that the FCA has received complaints about. Although the list changes regularly, the FCA adds new firms and names as frequently. Please note that you shouldn’t assume that the firm or individual you are about to deal with is legitimate simply because they are not in the FCA list. The firm/individual may not have been reported to the FCA yet.

It’s also worth noting the FCA has another list (a warning list) http://scamsmart.fca.org.uk/warninglist/ that contains names of individuals and firms that contact people unexpectedly about investment opportunities. You can use this list to see the kind of investment opportunities, firms and individuals you should avoid.

Step 4: Conduct additional checks

Today’s scammers use tactics that keep evolving so don’t stop even after checking the FCA’s list of unauthorised firms. For instance, you should investigate the firm’s website using Companies House (https://www.gov.uk/government/organisations/companies-house) or directory enquiries to ascertain if the firm has issued the correct details on their website.

Step 5: Be cautious of cloned firms

Most scammers pretend to be subsidiaries of a company authorised by the FCA. The scammers usually claim to be overseas firms authorised to conduct business on behalf of FCA authorised firms. Beware of such firms (commonly referred to as cloned firms). To avoid being scammed by cloned firms, check the website of the authorised firm to confirm if the firm has subsidiaries or authorised partners.

Step 6: Stop sending money immediately

If you have already started conducting business with a firm but start getting suspicious that you are being scammed, stop sending money to the firm or individual in question immediately. If you have already surrendered your bank account details, inform your bank immediately.

Step 7: Beware of overseas firms

Most scammers today will present themselves as overseas firms making it hard for you to check and ascertain if they are regulated. Luckily, the FCA has compiled warnings from foreign regulators here: http://www.iosco.org/investor_protection/?subsection=investor_alerts_portal. These warnings are about foreign firms operating illegally and/or scamming people in the UK. Before dealing with any overseas firm/scheme, find out how that firm/scheme is regulated.

Step 8: Report unauthorised firms

If you suspect you have been dealing with an unauthorised firm, contact the FCA immediately through their consumer helpline number (0800 111 6768). The FCA has a reporting form that allows you to report as much information as possible about the ”suspect” firm or individual.

Step 9: Be cautious about further scams

Scammers take advantage of the fact that individuals who have been scammed will want to get their money back. As a result, beware of individuals or companies that call to assist/help you get your money back.

Further scams can assume many forms. For instance, you may be offered another deal that comes with some fees that must be settled before you can get your money back. You can also be threatened with some legal action if you request for a refund or stop sending money. Scammers also ask for personal information such as bank account details for them to send you a refund. Instead of getting back your money, the scammers can attempt to steal your funds and/or sell your personal information.

Step 10: Don’t forget about fake liquidators

The FCA has received numerous reports that scammers are impersonating liquidators/claiming to represent legitimate liquidators. Such scammers usually charge a fee, tax to sell/release/return your investment. You may also be asked for an upfront payment. Avoid such firms/individuals by all means. You can find legitimate liquidators by clicking here: https://www.gov.uk/find-out-if-a-company-is-in-financial-trouble

Summary

Although there may be other steps to follow when you want to avoid fraudsters and unauthorised firms in the UK, the above steps are the most important according to the FCA. If you follow them to the letter, you don’t have to worry about being a victim of any financial scam in the UK.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.
What Questions Should You Ask Before Taking A Loan?

What Questions Should You Ask Before Taking A Loan?

Many questions linger in the minds of borrowers before they take loans. When you consider the implications of taking a loan and being unable to repay it, it’s important for every borrower to be properly informed from the onset. In case you are wondering what you should ask yourself and your bank before you take a loan, here are important questions to consider.

1. Do I really need a loan?

It’s easy to get a loan nowadays, so it’s crucial for you to ask yourself if you really need one. Banks advertise loans all the time. However, you need a better reason to take a loan. If you don’t have a reason of your own, let your bank give you a good reason. Some banks have business loan programs meant to provide people with business loans as well as the expertise needed to set up prosperous businesses. If you’ve always wanted to start your own business, you can consider such a program.

2. What type of loan is the best for me?

You should ask yourself and your banker this question before you decide to take a loan. This question is important since there are many types of loans ideal for different purposes. For instance, a payday loan is perfect for emergency expenses. However, it’s not handy for starting a business. Personal loans also have notable benefits over business loans and vice versa. Depending on your reasons for taking a loan, your banker should be best suited to suggest the best type of loan for you. Nevertheless, you should be able to assess if the type of loan you are about to take is actually the best type of loan for you. You can assess things like interest rate charges among other repayment requirements i.e. the term of the loan to decide if the loan in question will work for you.

3. What’s the total cost of the loan?

This is another crucial loan question to ask yourself and your banker. It’s worth noting that loans are usually structured in terms that can be difficult to understand. Some lenders actually do this on purpose. The chances of a loan being more expensive than you actually think are very high so, make sure you find out the actual cost. You should do your own calculations if you have to or ask your banker to do the same on your behalf. This question is very important since the actual cost of most loans is usually hidden in confusing financial jargon. Don’t take chances. Know the total cost of any loan beforehand otherwise, you won’t be able to make an informed decision.

4. What happens when I repay early?

It’s also crucial to find out if there are any penalties if you repay your loan early. Most lenders don’t want you to repay your loan early since they earn most of their money in the form of interest income. It’s usually in the best interest of banks for borrowers to service the loan for the entire term. To discourage early repayment, banks usually have penalties. Although most banks disclose these penalties, some may hide them in the fine print. It’s crucial to find out if there are such penalties and when they apply if you are interested in repaying your loan faster.

5. What documents do I need to provide?

To get your loan amount in record time, you need to ask yourself and your bank what documents you need to provide to qualify for the loan in question. Business loans require business documents ranging from licenses to financial reports. Personal loans require bank statements, pay slip/income information, etc. Since different lenders tend to have different requirements, find out the type of documents you need in advance and provide them with your application to reduce the time it takes for your bank to process your loan.

Summary

You shouldn’t take a loan because everyone else is taking one. You shouldn’t assume the total cost of your loan either or take any loan that comes your way. It’s also important to know all the requirements for qualifying beforehand to avoid wasting time. Loans come with many requirements, risks, and costs that you should be aware of before committing yourself.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.
Saving Money vs. Taking Out Loans

Saving Money vs. Taking Out Loans

It is always advisable to build an emergency fund by saving a portion of your income every month. An emergency fund is always handy when you incur unexpected expenses such as; medical bills and car repair bills. You can’t afford to put such expenses on hold. If you don’t have savings, you will be forced to take out short-term loans such as payday loans to cater for the expenses. Saving money has always made sense. There are however exceptions. Below is a discussion to help you make an informed decision if you are torn apart between saving and taking loans.

Saving money is highly recommended

You should always strive to save a portion of your income every month whether you have loans or not. Developing a saving culture is important because there will always be something that you can buy with excess money. Furthermore, life is full of eventualities. You can fall sick, get involved in a car accident, lose your job, etc. When any of these eventualities happen, you need to have an emergency fund to cushion you before you get back on your feet. In such cases, you may not be able to qualify for a loan. Your savings will be your last resort. Having substantial savings also gives you that much-needed peace of mind. Many people suffer from financial stress because of living from hand to mouth. You need to save to avoid unnecessary stress when you incur unforeseen expenses.

When is taking loans better than saving money?

When you have a business idea that requires a substantial amount of money, it may be better to take a loan than to try and save up money. Taking loans for investment purposes is advisable. It can take you decades to save up enough money to start your business. Furthermore, most business opportunities don’t remain viable for long. You will almost always lose out if you save up to start a business. Savings can only take you so far if you don’t have a substantial income. There is nothing wrong with taking a business loan provided you have done your research. You should also make sure you get favorable loan terms.

Short term loans like payday loans are also ideal when you don’t have access to your savings. If you have a locked your savings in a savings account, you may not have immediate access to your money in case of an emergency. Payday loans come in handy in such cases. The loans are available instantly at reasonable interest rates if you borrow from a reputable payday loan lender or use a licensed broker like Swift Money. Payday loans are also easier to access. You can apply online. Some savings accounts aren’t accessible online. In cases where you don’t have the luxury of time, it’s always better to take out a payday loan or other types of short term loans instead of waiting to save up.

Saving and taking loans

There is nothing wrong with saving and taking loans at the same time. As long as you qualify for a loan and you have a good reason for taking the loan, you can save while you take up new loans. You should stop taking up new loans if you will have problems repaying them. However, don’t forget the benefits of taking up loans. For instance, you are bound to boost your credit score by taking up new loans provided you service them as required. Savings don’t offer such benefits.

Should you start saving after you are debt-free?

Although it is better to start saving when you are debt-free, in most cases, it may take too long for you to start saving if you focus on clearing all your debts first. Some debt i.e. home loans take more than a decade to clear. Home loans can take less time if you channel your savings to repaying the loan. However, it’s not advisable to do so if you don’t have a substantial emergency fund. Your priority should be setting up an emergency fund. Once you have done that, you clear your debt and then go back to building your savings account.

Furthermore, it may make more financial sense to service debt than repay it as soon as possible. Most lenders charge fees for early repayment making it better to continue servicing debt. You may also be getting a loan at a very good rate.

Summary

When it comes to saving vs. taking loans, it’s a matter of perspective and scenario. It is prudent to save in most cases. In other cases, however, it may be better to take loans. In a nutshell, it is up to you to analyse your current situation to be able to make an informed decisions.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.
What is the Difference Between Secured and Unsecured Loans?

What is the Difference Between Secured and Unsecured Loans?

Personal loans can either be secured or unsecured. The difference between secured and un-secured loans can be explored in the definition, interest rate, credit requirements, availability and the loan amount. To start with, let’s define secured loans.

What are secured loans?

Secured loans are simply personal loans that are backed (secured) using an asset i.e. some form of property, a car, etc. Since assets back secured loans, lenders have the right to sell the asset in question if a borrower is unable to repay their secured loan. Although most lenders usually give borrowers a chance to meet their repayment obligations before they decide to sell the asset in question, they aren’t legally bound to do so. A lender can sell your security without going to court if you violate the terms of your secured loan. Mortgage loans are perfect examples of secured loans. In such a case, the home/property you purchase is the collateral.

What are unsecured loans?

Unsecured loans are personal loans which don’t require collateral. You don’t need to have a house, a car or any other form of asset to get an unsecured loan. As a result, you don’t stand to lose your property or asset in case you default on the loan. There are however dire consequences of defaulting on unsecured loans. For instance, your lender can sue you. In such instances, there are high chances of losing any asset you own. Defaulting on an unsecured loan (and any loan for that matter) also hurts your credit rating making it ver hard and more costly to get loans in the future. A perfect example of an unsecured loan is a payday loan.
Other significant differences

There are other notable differences between secured and unsecured loans apart for the fact that secured loans require collateral and unsecured loans don’t require collateral. These include;

Interest rate

Secured loans tend to have better interest rate charges than unsecured loans because they are less risky. Since you provide collateral before getting a secured loan, the loan is less risky for the lender. It’s worth noting that the risk factor of a loan is one of the most important considerations when determining the interest a borrower is supposed to pay. Since lenders are less worried about you repaying a secured loan, the interest rate charged is less. Unsecured loans expose lenders to unnecessary risks including other problems i.e. legal fees when pursuing defaulters. This explains why the interest on unsecured loans is usually higher.

Credit requirements

The difference between secured and unsecured loans can also be explored in the credit requirements. For instance, a borrower’s credit history is always a factor when issuing unsecured loans with the exception of payday loans. Unsecured loans are usually given to borrowers with a good credit history i.e. borrowers who have shown a good/impressive ability to repay their loans in the past. Payday loans are an exception because they are usually available to individuals with bad credit. You must, however, have a job or regular source of income to qualify.

For secured loans, however, you don’t need to meet strict credit requirements since you provide security for the loan.

Availability

In regards to availability, unsecured loans are more available than secured loans. Payday loans are widely available than any other types of loans in the UK. It is possible to get unsecured loans easily online or offline through the countless UK loan lenders available today.

Secured loans are less available since they aren’t sought after by many people. Most people don’t have the collateral to secure loans. The few that have collateral/assets usually don’t need loans.

Loan amount

Secured loans tend to be available in larger amounts compared to unsecured loans. Secured loans are specifically suited for individuals with substantial cash needs.

Summary

The above information discusses the main differences between secured and unsecured loans. After reading the above information, you shouldn’t have a problem deciding whether to take a secured or unsecured loan. For instance, secured loans are best suited for you if you have collateral. On the other hand, an unsecured loan such as short term loan will be perfect for you if you need cash immediately, but you have a bad credit score.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.
Borrowing for a holiday: Is It A Good Idea?

Borrowing for a holiday: Is It A Good Idea?

Let’s face it! It doesn’t sound too smart taking out a loan to finance a holiday right? Well, yes but there’s a twist to it. You’ve probably heard that it’s a bad idea to borrow to finance a liability. Well, a holiday can be an asset or a liability depending on who you ask. So, should you really borrow to pay for a holiday? If you want to take out a personal loan or any other kind of short term or long term loan to finance your holiday, here’s what you need to know first.

1. There are situations that warrant borrowing for a holiday

First and foremost, it’s important to note that it’s not always a bad idea to take out a loan to finance a holiday. Having quality time during the holidays with your family is very important so there’s no problem borrowing some money especially if you can afford it. Furthermore, you don’t need to be broke to take out a loan. You may be taking out a loan because you don’t have access to your money at the moment. For instance, you may have some investments that you don’t want to liquidate because the returns aren’t favorable at the moment. In such a case, a loan is justified. The consequences of failing to spend quality time with your family is worse than having to borrow a small loan to fund your holiday expenses. If you can pay for the loan comfortably, go ahead.

2. You need to plan in advance (know how much you need to borrow)

When taking a loan to fund your holiday expenses, you need to plan in advance otherwise, you will end up having problems later. You should never take out a holiday loan before you determine the amount of money you need. Borrowing using estimates is a recipe for disaster. Planning in advance ensures you borrow exactly what you need which is a great way of controlling your expenditure. It doesn’t really matter if you are taking out a payday loan or personal loan to finance your holiday, you must know how much you need in advance.

3. Look for holiday loan offers

Retail stores aren’t the only businesses offering great deals during the holiday season so, if you have to borrow, make sure you are getting the best deal possible. Banks among other financial institutions offer great loan deals for the holidays. It’s therefore up to you to source for the perfect holiday loan deals. There are plenty of great holiday loan deals available currently in the UK. You just need to shop and choose the best deal for you.

4. Plan to spend wisely

Most people have problems on holidays because of overspending. It’s very easy to overspend during a holiday if you don’t have a budget/plan in place. This is precisely why many people end up taking more than one loan to fund holiday expenditures. To avoid taking in an extra loan and incurring unnecessary expenses, spend wisely. Avoid impulse buying at all costs. You should also capitalise off the numerous discounts offered during the holiday season. Always remember that there is life after the holidays. Have a budget and don’t get carried away!

5. Borrow to fund basic holiday celebrations

Sometimes you may feel the urge to borrow to fund an overseas trip. In such a case, it’s better to consider less expensive holiday celebrations unless you lack money temporarily. It’s never a good idea to borrow to fund a lavish holiday especially if you will have trouble repaying the loan.

Summary

The holiday season has many surprises. You may not get your finances in order in time because of many reasons i.e. late/delayed payments etc. In such instances, you may be forced to borrow to fund your holiday expenses. As long as you plan in advance, look for the best holiday loan offers and spend wisely, you shouldn’t have any problems repaying your loan after the holidays. Furthermore, there is much more to holidays than spending money. If you can stick to a loan amount that is manageable, then there is no problem with taking out a loan for a holiday.

Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.