If you’ve been struggling with your finances recently then you might have went to the bank only to find that the banks aren’t lending to just anyone anymore. Nowadays, banks are being much more careful with their lending and it’s unlikely that you’ll be successful for a loan unless you have an excellent credit score.
This has resulted in people turning to alternative lending options. Throughout the next few sections we’re going to discuss the importance of alternative lending options, and then we’ll compare two of the most popular types of alternative lending: logbook loans and payday loans.
The Importance of Alternative Lending Options
Alternative lending options have never been more important than they are today. In today’s world, it’s more common for a person to have a poor credit score, meaning that receiving a loan from a bank is extremely difficult.
Those with a poor or nonexistent credit score are going to have a much easier time borrowing money through an alternative lending process—these include: logbook loans, payday loans, and pawnbrokers.
The Pros and Cons of Logbooks Loans
If you are looking for mid-term lending than a logbook loan is going to be more suited to you. These types of loans are generally kept open for 3-24 months. You’re going to have more flexibility with these loans and you can expect to receive your money in as little as 24 hours.
Logbook loans are also inexpensive compared to other types of alternative lending, you’ll find that lenders are much more willing to give you a lower interest rate with these types of loans.
If you decide to take out a logbook loan, it’s important to keep in mind that you’ll need to put your vehicle up as security. You’ll still be able to use your vehicle throughout the duration of the loan, but it might be repossessed if you can’t keep up with repayments.
The Pros and Cons of Payday Loans
Whereas logbook loans are best used for mid-term borrowing, payday loans are best used for short-term borrowing. Payday loans generally only last for no more than 30 days (or until the borrower’s next payday), hence the name.
As these are very short-term lending options, you’ll find that the interest rate can be extremely high. The popular payday loan company Wonga was banned from using a TV advert in 2014 because it failed to mention the huge 5,853% annual interest rate.
Which One Would Be Best for You?
There is no one-size-fits-all solution when it comes to lending, what works for one person might not necessarily work for another. Logbook loans would be a better fit for you if your vehicle has significant value, you don’t want to damage your credit score, and you need more flexibility with the funds. On the other hand, a payday loan would be better if you only need a small amount of money and not much flexibility.
By far the most important aspect of lending is the repayments. You need to make sure that you can make the repayments on time so that you don’t get yourself further into financial trouble.