Credit Unions –
Usually these are set up in local areas to benefit those people in
the community or are for certain professions or trade unions such as
nursing or transport workers. They work in a mutually beneficial way
so they don't need to make profits for expectant shareholders. This
means they can offer financial services to those who won't normally
be accepted for a loan by high street banks. Of course you need to
fit the criteria to see if you can benefit from a credit union
whether through where you live, your employer or other associations.
If you want to find if you are eligible to join a credit union you
search easily on Mutual Financial Services.
Peer to Peer lending
– Also known as P2P, Crowd lending or social lending this form of
lending has been around for 10 years now. In recent years the
popularity of P2P has increased and looks to further expand in future
years. Rather than using banks it involves taking out a loan from a
provider who will source the finance from UK residents looking to save
money. The money from all the savers is then
gathered together and the company lends this out to the approved loan
applicants. In many cases you will have heard of the company and not
realised they are a P2P lender but thought they are simply an online
lender. How they are financed will make little difference to the
borrower and will seem similar in process to dealing with traditional
lenders. Both the borrower and lender can often benefit from better
rates than if they simply turned to a bank or building society. Most
lending is done on the same basis as banks in terms of amounts loan
(usually between £1,000 to £25,000) and the lending period (between
1 and 5 years). Since April 2014 companies offering peer to peer
lending have been regulated by the Financial Conduct Authority (FCA)
so only genuine companies can now accepted for peer lending.
Pawnbrokers – You
may have noticed a number of television programmes about pawnbrokers
in the last year. Many pawnbrokers still solely operate in the
traditional way by offering loans on items such as jewellery but many
accept whatever a potential customer has to offer as long as it has a
resale value. This can be works of art, antiques, cars and even
yachts. Your item acts the guarantee against the loan so if you
can't pay the loan amount back on the due day after giving you notice
the pawnbroker can sell your item to fund the debt amount. If the
sale doesn't raise as much money as the loan you will still be liable
for the difference. For example if you a pawn a gold ring for £200
and default against the loan so it is sold but only for £150 you
will still need to pay the extra £50 and you can no longer claim
your ring back. Bear in mind as well that the retail value of an item
is usually much higher than a second-hand sale price so you many be
disappointed at the amount your item is valued out. The interest rate
on items that are pawned is usually much higher than banks at over
50% APR however they don't run credit checks as you have already
offered your goods as a guarantee. If you want to use a pawnbroker
find one that adheres to the National Pawnbrokers' Association code of conduct.
Pay Day Lenders –
Like pawnbrokers these companies offer short term loans but the
lending period is based on days rather than weeks and months. The
idea is that if you need money today but you can repay it within a
short period of time i.e. once you get paid, this is a quick and
simple form of borrowing. However, such loans have many pitfalls to
them. The typical interest rate is usually over 1000% APR making it
one of the most expensive forms of lending. Also many mortgage
lenders are now turning down loans to people who have taken out pay
day loans. This is because they are seen as financial risk and
someone who can't budget their money. For example if your car broke
down and you didn't have the money to get it repaired until payday
instead of going overdrawn you decide to take out a payday loan but
still repay it back in full within a couple of days. It could be
assumed you have no savings and no extra income available if the
mortgage interest rate went up.
Have you ever taken out a
loan? What are your experiences of alternative lenders?
This is a collaborative
post. I am unable to give personal financial or legal advice. Any
links provided in this post should not be seen as endorsements. Other
forms of lending and websites are available
