Whether you’ve had a reduction in your income, or a sudden increase in bills, there are plenty of reasons why you might need to borrow money to assist you through a personal crisis. When you have a family, this can be especially difficult, as providing for your children will always be your top priority.
Due to the recent coronavirus pandemic, many of us have found it a struggle to pay bills, whether that’s through illness or being furloughed. But there are options for when you need to borrow money during a crisis – which we’ve outlined below.
Planning for a crisis is never easy – especially a global pandemic! But knowing what your options are can be a great way of preparing for the worst and providing you with some comfort if you ever need it.
Because of the coronavirus pandemic, around 70% of families have had to cut back on basic food and essentials, with half of these falling behind on rent or bills. Although these figures are shocking, there are ways to help with your family finances during a crisis.
Logbook loans
If you own your vehicle outright, or perhaps you’re reaching the end of your finance agreement, you may be eligible to apply for a logbook loan. A logbook loan allows you to borrow money against your vehicle, whether that’s a car or van – but you can still use your vehicle during the loan period. You provide the loan company with your logbook, known as a V5 registration document, who will keep this until you’ve finished the repayments on the money borrowed.
Often, logbook loan companies can approve the funds the same day – helpful if you do have bills that need paying or have other family financial issues. If you have a poor credit history, logbook loans can be a handy way to gain access to funds – something you might not be able to through mainstream lenders.
There are some eligibility criteria you should consider before taking out a logbook loan. These are as follows:
- You own the car or vehicle outright – or your finance plan is almost coming to an end
- Your own name is on the V5 document (logbook)
- The car is insured, alongside you having a valid driving licence
- You’ve got a regular income coming in, or the person you’re applying with does (this shouldn’t be benefits)
With most loans, you have to pay interest back on top of the funds you’ve been allocated. This is the same for logbook loans too. However, this will be clearly outlined to you in your contract and you’ll be able to decide if that’s something you’d like to go ahead with. Responsible lenders will check your affordability rating, ensuring you’re not borrowing more than you’d be able to pay back.
Personal loans
A personal loan can be a good choice if you’re going through a personal financial crisis and need extra funds for your family. Many companies like Tower Loan offer personal loans that best suit your situation.
When taking out a personal loan, you’re not back by any collateral (such as your car through a logbook loan) – this is why you might hear a personal loan being called ‘unsecured’. This means you don’t have an asset held against the loan, so a decision to approve your application is usually made on your credit history or if you have a guarantor (dependent on the provider).
Regular lenders or high street banks may be less likely to offer you a loan if you have a poor credit rating. This can be very frustrating, but doesn’t mean you won’t be approved elsewhere.
Having a poor credit score might mean looking elsewhere for additional funds, aside from personal loans. But there are plenty of options out there to help. If you need some more detail about the different kinds of lenders available to you, have a look at the previous link.
What happens if you find yourself unable to repay your loan?
With all this talk of borrowing money what happens if you find yourself in a situation where you are unable to repay your loan this month? In the first instance we would suggest you pick up the phone and speak to your lender directly. They should be able to help you either by deferring your repayment or offering time to pay.
It has been documented in the UK press that lenders like Amigo and George Banco have given loans to customers even when knowingly the lender was aware customers could afford the repayments. If you believe you have been given a loan without the lender completed the checks required including your ability to make contractual repayments you maybe able to reclaim a compensation refund.
You can use a claim management company to help you reclaim your refund or speak to the lender directly before complaining to The FCA and The FOS. Websites like ReclaimExperts.co.uk can help with Amigo Refund Claims however please be aware they will charge you a fee on any refund they get for you.
Credit cards
You could go down the credit card route, if you require some extra money for your family during a crisis. With so many different types available, this means lots more opportunities to be approved. Criteria for applying will differ from lender to lender – and many high street banks will have quite strict guidelines on the amount they’re willing to lend you.
Don’t forget, if you are considering taking out a credit card, they often come with high interest rates and sometimes additional fees. This can be dangerous if you’re not aware of how much you have to pay back each month. Making the minimum payment may just mean you’re only paying back the interest, leaving you with debt to pay off over a long amount of time.
You might also be tempted to continue using your credit card after your personal financial crisis is over. This can lead to building further debt up, which may cause you more problems in the long run. Seriously consider all your options before taking out a credit card.
Home equity loans
When most of us buy a house, we have to take out a mortgage, which helps cover the cost of the home. It’s a loan secured against the house, so that you can make regular payments. Sometimes you can take out a second mortgage, often called a home equity loan, which allows you to borrow a lump sum of money against your property.
The amount of money you can borrow depends on the value of your property to a certain percentage. If you’ve been turned down for credit in the past or have a poor credit rating, you might find securing a home equity loan tricky, so it may be better to look at some of the other options available.