Two of the most popular and controversial bad credit loan options for people with problems on their credit scores are logbook loans and payday loans. Both offer the promise of quick cash and both financial products don’t require credit checks hence faster approval for your loan application every time. But which one of the two loan products is better? Should you take out a logbook loan for your medical expense or opt for a payday loan instead? This guide will help you make the right decision.
Payday loans vs. Logbook loans
Payday loans are unsecured loans ideal for borrowers in need of quick cash for a variety of personal needs. Offers start from £100 up to £1,000 payable after 28 days or on your next paycheck. The loan product is typically offered for full-time employees who can provide proof of income. As long as you have your recent pay slips handy, you can apply for a payday loan and get approved instantly. There’s no security or collateral involved making it a convenient source of financing for overdue bills, car repair and more.
Logbook loans, on one hand, are secured personal loans offered for people with bad credit who are also car owners. In addition to meeting the basic requirements, the borrower must own a vehicle to secure the loan against. Because of the collateral, you can borrow way more money than if you simply apply for a payday loan. With a logbook loan deal, you can apply for loans between £500 and £25,000. Some lenders may even offer more depending on your vehicle’s official trade value. Because logbook loan providers offer larger loan amounts, it’s typically ideal for major financial emergencies and needs including medical expenses, business expansion, home renovation, etc.
When it comes to the cost, both loans are quite costly. One of the reasons why logbook loans and payday loans are hounded with controversies is because of the steep interest rates. Payday loans, for instance, have a representative APR of 1,000% on average. If you borrow £80 over 29 days and the interest is fixed at 292.8% and the representative APR is 1,291.8% then the total amount of payments you’ll make is £98.56. That’s about £18.56 in interest.
At first glance, logbook loans may look cheaper because it has a representative APR of 400% on average, which is clearly cheaper than that of payday loans. For example, if the representative APR for your logbook loan deal is 450% and you want to borrow £850 over an 18-month term and the interest is flat rate at 132% per annum then you’ll be paying a total of £2,533 or about £141 per month. Click more info to know more about logbook loans.
As you can see, both loans are pretty expensive. Careful planning is essential whichever of the two loan products you pick. Either way, you’ll be paying a lot of money in interest. But then again, that’s one of the consequences you must accept if you have a bad credit score.
Which one is better?
While logbook loans and payday loans are easy loans, they are mostly disadvantageous for borrowers because of the cost. But if you think it necessary to resort to these loans, there are only two things to keep in mind. No one loan is better; it really depends on your needs and on your financial capability to repay. And if you do resort to these loans, make sure to keep the borrowing within affordability and commit to timely payments per month to avoid any more financial problems.
Regardless of the controversies surrounding payday loans, borrowers that need quick cash will still resort to this type of loan because it’s easy, available online and best of all, it’s ideal for people with bad credit. If you’re one of the numerous people who is thinking of taking out a payday loan, here’s how to find the best deals available in the market:
- Plan your borrowing
Even if you’re only going to borrow a minimum amount of £100, planning is key to find the best payday loan deal. Before you start looking for a payday loan, you should already know how much you’re going to borrow and what it is for. You must have a plan on how to repay the loan on time. Without a careful plan, you may only be putting your finances at greater risks.
- Compare your options
With your plan ready, the next step is to compare your options. There are plenty of payday loans available in the market. Your job is to look for a deal with the cheapest interest rates. If you don’t know where to start and if you don’t have the time to go through thousands of deals, you can always rely on top comparison sites to do most of the work for you. These sites have a list of recommended deals and providers, which they’ve researched and found to be the best in the market, for you to choose from.
- Understand the cost
When comparing your options, one of the key factors to zero in on is your payday loan’s cost. Payday loans are expensive so it’s imperative that you find a deal with the lowest possible representative APR available. Low APRs, however, does not necessarily mean your payday loan is cheap. You’ll also want to look at factors such as late payment fees and other related charges. It is also imperative that you go for a lender with a solid reputation and with a slew of positive feedbacks from borrowers on its seams.
- Sign your deal
To close the deal, all you need to do now is sign the contract. Once you’ve signed, you agree to the loan terms, which usually includes that if you’re late with your payment, you’ll be incurring charges on top of your current loan’s cost plus interest. If you signed up for recurring payment option, you’ve allowed your lender to take your repayment from your account on your due date. As long as there are sufficient funds in your account, then you shouldn’t have any problems at all.
Payday loans have gotten the bad rap for a long time. With its incredibly high-interest rates and the danger of debt trap, the financial product has been constantly criticised. But no matter what financial experts may say, there’s no denying the fact that payday loans offer what many borrowers with bad credit often need—quick cash.
If you’re one of the many people who have thought of applying for a payday loan to fix financial emergencies then knowing the pros and cons is crucial to your decision. Like with most things in life, as long as the pros outweigh the cons, then you’re likely making the right decision.
What are the advantages of a payday loan?
Payday loans may be highly controversial but not without some pros. Here are some of the advantages you can enjoy with a payday loan:
- Online availability – Payday loans are widely available online, which means there’s no need to go to your lender’s office to avail the cash that you desperately need for a bill or any other expense.
- Minimal requirements – Since payday loans are not secured on any asset or collateral, the requirements are typically very minimal for borrowers. All you need is to meet the basic requirements, which includes being of legal age and a UK resident with a full-time job.
- Fast cash – The promise of quick cash is one of the chief reasons why borrowers are drawn to payday loans. If you need the cash today, getting a payday loan can easily meet your need. Most, if not all, lenders promise approval in 24 hours or less.
- No credit checks – There’s also no credit checks for borrowers to worry about. If you have a bad credit score and you’ve been struggling to avail a personal loan elsewhere, getting a payday loan instead may just be the sensible thing to do in a financial emergency.
What are the disadvantages of a payday loan?
Though quick to avail and perfect for borrowers with bad credit, payday loans also have its downsides. These downsides should be thoroughly considered before you sign up for a deal. Here are the cons associated with a payday loan:
- High interest – Payday loans are extremely expensive. The interest rates are often steep especially since the loan product is specific for borrowers with issues on their credit score.
- Late payment fees – In addition to the high-interest rates, there are late payment fees to think about. In the event that your payment is late, expect hefty additional charges added on top of your currently steep loan cost.
- Debt trap – But worse of all, there’s the danger of debt trap. Because payday loans are easy and convenient, people who are always in need of quick cash may tend to continue the borrowing month after month. Before you know it, you’re already deep in debt with hefty interest rates that are hard to get out of.
Is a payday loan for you?
By knowing the pros and cons of a payday loan, it would be easier to decide whether it’s the right loan product for you or not. If you feel that it’s a sensible choice to meet your financial emergency, there’s only one thing to keep in mind – Make sure you repay the loan on time to avoid the extra charge. And once the loan is paid up, don’t renew the loan. While payday loans promise quick cash, it’s not the type of loan product you want to be dependent on for financial emergencies.