If you want a personal loan, you should consider borrowing from a bank, building society or credit union. Before you arrange a personal loan:
- do your research to find the best deal available
- consider how many months or years it will take you to repay the loan
- consider the full amount you’ll repay, which includes interest
- consider the amount you’ll repay each month
- check the annual percentage rate (APR) charged by the lender
The APR is the best way to compare loans. Generally, the lower the APR, the better the deal.
A payday or pay cheque loan is a short-term, high interest, unsecured loan that you get in return for your pay cheque or proof of your income. The loan is a quick, cash advance on the salary you are expecting.
Before you arrange a payday loan, make sure you know the interest rate charged and the financial penalties for falling behind with your repayments. If you can’t repay the full amount in time then your loan rolls over, your debt escalates and you could get into financial difficulty
Find out more about payday loans.
You will often see logbook loans advertised in high street shops or on the internet. The promise is fast cash, but logbook loans often prove to be very problematic for borrowers.
A logbook loan is secured on your vehicle. The loan amount will reflect your vehicle's value. You will be required to:
- sign a credit agreement
- sign a bill of sale
By signing a bill of sale, you agree that the lender becomes the legal owner of the vehicle and can take your vehicle if you stop repaying the loan. A bill of sale allows the lender to seize your car without a court order.
The law only recognises the bill of sale if the lender registers it with the High Court in Belfast. If it is not registered, the lender must get a court order to repossess your vehicle. If you think you may fall behind with your loan repayments, you can check if the bill of sale is registered. You will need to fill in a court form with your and the lender’s name and address and pay a fee to the High Court.
You can still drive the vehicle while you repay the loan. You only become the vehicle’s legal owner again when you have settled the agreement in full.
Before you arrange a logbook loan, ask the lender to:
- explain your responsibilities
- explain how you might lose your vehicle
- confirm the APR
You’ll get cash quickly with a logbook loan, but the APR is very high for the loan repayments, sometimes over 200 per cent. You should look for a cheaper way to borrow money where you won’t risk losing your vehicle.
Borrowing from an unauthorised lender or loan shark
A loan shark is the common term for an illegal money lender, in effect, a money lender who has not been authorised by the Financial Conduct Authority (FCA).
A loan shark will lend you money even when authorised moneylenders have refused. A loan shark will also charge you a very high interest rate. You'll struggle to repay the loan .Soon you'll have to borrow more to repay the first loan. You'll probably take out another loan to repay the second loan. Within a few months, you will be deeply in debt.
If you get into arrears with your repayments, the loan shark may become aggressive. It isn’t a criminal offence to fail to repay a debt so the loan shark cannot bring you to a criminal court about your arrears. It is very unlikely that they’ll take you to a civil court as a loan from a loan shark is not legally enforceable.
It is against the law for a loan shark or someone acting on their behalf to:
- threaten you or your family with violence
- threaten you with menacing telephone calls or letters
- harass you at work
- take any social security benefit book you have
Loan sharks are not licensed to lend money. They operate outside the law and do not respect it. If you complain to them, they may continue to threaten you.
All lenders must check your credit worthiness and satisfy themselves that you can afford the repayments before lending you money. They run a credit check which shows your history as a borrower and how well you repaid credit or debt.
If the check shows your credit history is good, moneylenders want to lend you as much money or give you as much credit as they can.
If your credit history is poor or non-existent, authorised moneylenders may well refuse your credit or loan request. They know it would be a risk to lend you money or credit because your present income and debt would make it difficult for you to repay a new loan. This may be disappointing but it's probably better to accept the decision than borrow from a loan shark.
If you think a lender is trading unfairly, you should tell Consumerline. They can refer your complaint to the Trading Standards Service for investigation or the Financial Conduct Authority which authorises lenders.