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Ways to Borrow Money in a Crisis

20.05.2020 by Adam F

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The global coronavirus pandemic is continuing to weigh down heavily on the purse strings of people, not just in the UK, but all over the world. The primary worry on everyone’s mind right now is how to survive through these harsh times because life as we know it is turned upside down.

Many businesses have either closed down indefinitely or halted entirely. For this reason, a considerable percentage of workers in the UK are facing economic uncertainty as some are asked to take pay cuts, others are laid off while others just furloughed.

There are lots of worries and concerns regarding where the next paycheque will come from since there are no guarantees. It is only natural for people to start wondering how debts and bills will be paid off. According to the UK Household Finance Index (HFI), a body responsible for measuring the overall perceptions of the UK’s citizens’ financial wellbeing, recorded an increase from 34.9 in April to 37.8 in May. These numbers remain an all-time low since it started performing its surveys in 2009. This only shows that there is more reason for citizens to worry.

It is because of such uncertainty and economic harshness that a lot of people are turning to borrow as they try to remedy the prevailing situation as the very last resort. However, even as people look to alleviate their financial circumstances, it is only essential to understand that such money borrowing opportunities to get you some fast cash will in most cases come at a cost. We put together some ways to help you through if you are looking for ways to borrow funds during a crisis, even post coronavirus. We have outlined the pros and cons so that you are fully aware of what you are getting into.

1. Logbook Loans

Logbook loans are loans that are granted to you but with your vehicle as collateral for repayment. The primary requirement is your car’s registration documents or logbook for you to get the cash. The good news is that even if you hand over the registration documents for your vehicle in exchange for some money, you will still be able to continue using it provided that you pay back the loan on time.

The amount of money you can borrow always depends on the value of your car. Nonetheless, the amount often varies from £500 to around £50,000. Sometimes money lending companies can even lend you money equivalent to half the worth of your vehicle. In most cases, the funds are immediately transferred to your account, but fees on the loan come up to 4%. It is among the quickest ways of accessing money.

The payback periods vary from one lending company to another. It will also largely depend on your payback agreements, but the average payment period for these loans for many companies is within 78 weeks. There are instances where it is only the interest charges that are paid until the time the contract comes to an end, and you will be called to pay back the original amount of money borrowed. Typically, the annual percentage rate (APR) for these logbook loans often falls at approximately 400% or even higher.

Since you are in crisis, you may want to jump into this opportunity and that is understandable. However, there are a few critical factors that you should know before moving forward and signing that agreement.

  • The car you present as collateral should legally belong to you. Furthermore, there should no outstanding financing on and have a value of over £500.
  • Just like any other borrowing option, you have to understand that attaining some quick cash has some costs associated with it. If it, unfortunately, happens that you are unable to pay back the money borrowed, your vehicle will have to be seized.
  • The amount of money you get will depend on how much your car is worth.
  • In some cases, money lenders may ask you to make weekly payments and you may not easily manage to make your payments using direct debit. It makes it very challenging to keep track of your payments and the much you owe.
  • Since the interest rates may be very high, you may have to make most of your payments on interest. This is because it may not be exactly easy to repay what you owe. The rule of thumb is to repay these loans a bit quickly. However, it should not be too quick. If you do, you may attract extra charges on the early repayments. It mostly happens if you pay back more than £8,000 in 12 months.

2. Personal Loans

They are also referred to as unsecured loans. It is because these are loans that are not secured by any collateral. You can access these loans from credit unions, your bank or online lenders. The repayments are made in fixed payments in periods of 2-7 years. You can get higher loans from securing personal loans than the much you can get from credit cards.

Your credit report, credit score and debt-to-income ratios are some of the things that will determine your APR. It only means that if your credit is pretty decent, you will have a pretty low APR rate. The opposite is also true if you have a terrible credit score. It such cases, you may not qualify for unsecured personal loans, but you can be considered for approval for a co-signed loan. The money is in most cases transferred to you the next day once approved for that loan.

The chances of you missing the stipulated payment dates are pretty slim because the loans are just automatically deducted from your checking account.

3. Credit Card Cash Advance

You can only access this facility if you have a credit card because you will have to withdraw money to your credit card. The cash advance on your credit card includes ATM withdrawals, betting and gambling transactions, electronic cash transfers, buying traveller’s cheques and foreign currency, among others. The cost of the advance largely depends on the amount of money you choose to take out. Sometimes the APR can go to a high of 50%. You also have to know that your bank also charges you some fees for taking the cash advance, which is often somewhere between 25 and 3%. In case you travel and get to use your credit card abroad, you can also be charged a foreign usage plus an additional bank charge.

A cash advance from a credit card is costly; there are very many avenues that fees and interests can accrue. Nevertheless, it is among the easiest ways of getting some cash if you are financially stuck between a rock and a hard place. You just have to consider the following factors before you proceed on taking out that credit card cash advance.

  • You need to repay the card balance as soon as possible to avoid getting charged very high-interest rates.
  • Although the repayment periods are a bit more flexible are paid every month, these cash advances are still more expensive in the long run when compared to other options like personal loans.
  • Some credit cards will charge you an interest rate that is higher for cash advances on the low end since several cards will charge you a minimum cash withdrawal fee.
  • The purchase protection you get is not the same as that of purchasing something with your card.
  • You need to find a credit card that works the best for you. This means that you should go for a card that has some of the lowest fees and interest rates. In most cases, the best cards will offer you APR of as low as 18% on cash advances.

4. Taking Out a Second Mortgage

If things get so tough, you can also opt to take out a second mortgage. This will be in addition to your first mortgage charge. These loans are taken out in lump sums and since they can get you large amounts of cash, they come with fixed interest rates with long repayment periods ranging from 5 to 15 years. However, they can also be taken out with a variable rate as a home equity line. In most cases, these loans have an average APR of 5.6%.

5. Payday Loans

You can also refer to them as cash advances. These are the worst offenders. Although they are effortless to get and you can quickly get up to £500, their interest rates can soar even to triple digits. Payday loans are often due in 2 weeks and must always be repaid in a one-off payment plus a service fee or interest. Different lenders have different set maximum limits of loans they can lend to borrowers. Even though you can easily get the cash, you have to know that the APR rates are always very high.

6. Unemployment Benefits

If unfortunately you were laid off at work so that your employer could make budget cuts, you have to make an application for unemployment immediately. Applying for this benefit will help you cushion yourself from these harsh economic times or whenever in a financial crisis. However, you just have to understand that you won’t be eligible to receive the benefit if you voluntarily quit your job without good work-related cause or getting yourself fired for just cause.

Other Options

If all of these options sound a bit scary to you or you are already debt, there is some bit of good news for you. You can choose to defer the debt payments up to three months, according to the Final Conduct Authority of the UK. According to the FCA guidelines, lending firms should provide its clients with a deferral of three months when requested by the borrower.

Although seeking to borrow money to help you stay afloat may be a good survival instinct, it is also a good idea to seek advice to help you manage stress and anxiety associated to your financial state, as suggested by The Financial Times. It will help in mitigating the stress and kicking out the associated stigmas.

Bounce Back Loans are running up to £50,000, and they are specifically designed to help small businesses that have previously had it tough securing financial assistance from their banks. For the first 12 months, you won’t have to pay anything, including interests. Furthermore, independent contractors and small business owners can also gain from Self-Employment Income Support Scheme from the UK government to serve you as a lifeline.

Final Remarks

During desperate times, people recourse to very extreme measures in a bid to help keep their head above the water. Although it may be a good idea, it is always wise to properly take heed before making any rash decisions. You should also check all of your resources and find out whether there are methods you could tap and help you. Despite the financial crisis, you should always be responsible for your borrowing since any drastic and irresponsible move could end up in financial burdens that could prove too much for you to bear.