A peer to peer loan could be an alternative way of borrowing cash if you can’t access mainstream credit cards or overdraft facilities. Generally, peer to peer lending is conducted online, and the peer to peer lending platform matches people in need of cash with people looking to invest their money. It’s a formal and regulated service, and the two parties will never meet face to face, so it maintains the privacy element of online lending.
It can be considered a somewhat risky investment for the lender, as there’s no guarantee they’ll get their money back. However it is also an investment which can turn over a relatively quick profit as the loan duration tends to be relatively short and the investor can often choose different levels of risk.
Peer to peer loans differ from normal loans mainly because an individual person, rather than a company, is acting as the lender. The transaction is conducted through a third party platform which matches the borrower with the investor and normally receives a commission for its services.
For unsecured borrowing, there are a range of options available, all of which will meet different borrowing needs:
Overdrafts are a very common feature of most adult bank accounts. Usually, an overdraft limit is agreed prior to the bank account being opened, and then you can use your overdraft when the funds in your bank account run out. Typically, a low interest rate is charged for your borrowing. Some banks even grant a 0% interest rate for the first £250 making small arranged overdrafts a cheap way of borrowing. However, it is important to remember that although your overdraft is attached to your bank account, using your overdraft is still taking out credit, much like putting a purchase on a credit card. The funds are borrowed and you may be charged interest, so if you can’t afford to make the repayments then it’s best not to borrow at all. If you find you are frequently in your overdraft and it’s causing more issues than it is helping you manage your finances, then you can always request that your bank closes or reduces the facility altogether. Just because you have an overdraft, doesn’t mean you have to use it.
Almost everyone knows what a credit card is: it’s a payment card that you can use to make purchases if you don’t have the funds at the time. With credit cards, you can make a minimum payment each month if you can’t afford to repay the balance in full, although it’s important to remember that only making the minimum payment will take you longer and cost you more to settle the balance. Plus, as you’ll only be able to borrow up to your credit limit, if you don’t repay more than your minimum payment when you can afford to do so, you run the risk of reducing your access to credit when you really need it – for example, if an emergency expense arises. Credit cards also come with more consumer protections than normal debit cards so they can be useful for making large purchases like holidays, but only if you know you can afford to make the repayments.
Short term loans are a quick way of getting cash online. You make an application, and if approved, the funds are transferred to your bank account almost instantly. You can generally borrow up to £1000 for any time between 1 day and 12 months, although typically a short term loan is borrowed for around 3 months. They are perceived to have a high interest rate because the APR is high, but as short term loans are rarely borrowed for a whole year, and you have to make instalment repayments throughout the borrowing term, the APR can be somewhat misleading. It’s a good idea to use the lender’s online loan calculator to see how much your borrowing will actually cost you, and to work out if you can afford your repayments throughout the loan term.
Guarantor loans, a bit like short term loans, are easy to apply for but you need a relative or a friend to sign on as a guarantor to make the debt repayments if you fail to do so. They are generally used by people with a low credit score who are financially excluded from mainstream credit. While cashflow shortfalls are nothing to be ashamed of, it can be awkward asking friends or family for help. It’s also worth noting that a lot of guarantor loan agreements will have an indemnity that means the guarantor can be primarily (as well as collaterally) pursued for the debt. This means they can ask the guarantor for repayment without first asking the borrower.
Private lending is an informal lending agreement usually between two friends or family members. This type of lending is not regulated and there is rarely a written agreement in place, although it’s always a good idea to agree something in writing in case more serious action needs to be taken. Private lending usually doesn’t accrue interest so it can be the cheapest way of borrowing a small amount of cash, but it involves a lot of trust and openness about your finances.
Credit lines are the newest credit product to join the market. A mix between a short term loan and a credit card, credit lines are easy to access and allow for flexible repayments. Like a credit card, you will have a credit limit and you can make minimum payments if you’re unable to repay your balance in full at the end of the month; and like a short term loan, the funds you withdraw are deposited directly into your bank account for you to use with your usual debit card.
A credit line with Polar Credit works just like any other credit line but with added consideration for our customers. We actively work to reduce the cost of your borrowing to ensure your borrowing with us is sustainable, and to reward your customer loyalty. You can apply for a Polar Credit line online and, subject to approval, withdraw funds up to your credit limit as and when you need to. You’ll only be charged interest on the funds you’ve withdrawn and, if you can’t make your repayment in full one month, you can make a minimum payment instead so that you can manage your cashflow in a way that suits you best.
A Polar Credit Line is a form of credit so you should only apply if you know you can afford the repayments and if you really need to borrow, because missing your repayments can cause you serious money problems and make credit harder to obtain in the future.
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