Wednesday, 10 April 2013

Navigating The Financial Maze

When you are a parent navigating through the financial world can be extremely hard. Many people are now facing cuts to their benefits and are looking for ways to borrow money easily and quickly.

So what are the options for parents who find themselves needing more money and what are the pros and cons of each one? I have decided to have a look at a few different ways of raising money and find out how they really work.

1. Using your overdraft. 

This seems the obvious solution when you need money quickly and easily - and if you like to keep all your finances in one place.  However there are some downsides too. Overdrafts need to be agreed by the bank and if you go into an unauthorised overdraft the rate of interest can be prohibitive. The bank will also need to take time to consider their decision so if you need money quickly this might not be right for you. Banks now charge you for each overdraft agreement too so it can cost you money in bank charges to even get the overdraft agreed in the first place!

Overdrafts can also give you a false sense of security. As they are attached to your current account it's easy to think that you can just spend a bit extra and add it to the overdraft which quickly mounts up. Finally overdrafts are usually only limited to a small amount of money so, whilst they might tide you over for a short financial crisis, they are not ideal if you need a large amount of money long term.

2. Getting an unsecured bank loan

An unsecured loan is one that is not secured against any personal items such as a car or a house. The positive thing about these loans is that there is no risk of loosing your home and for higher value loans you have a longer repayment period of up to 10 years  - giving you have plenty of time to pay back your debt. The downside is that most financial institutions usually only lend a maximum of £25,000 this way so if you need more money than that this is not the right loan for you.

You do need to remember that in the current financial climate banks are far more picky about who they offer these loans to so if you have a bad financial rating you may not be eligible for one. And of course if you do not make the repayments on this loan your credit rating can be seriously affected.

3. Getting a secured bank loan

A loan from the bank which is secured on your home gives you the benefit of being able to take out much larger amounts of money - up to around £50,000. They also have a longer repayment period on offer so you have more time to pay off your debt. However the very serious downside of a loan like this is that if you fail to make your repayments on time you may loose your property so you need to think very carefully before taking out a secured loan. If you think that there is any chance that you will not be able to pay the loan back in the required timescales then you do not want to put your home at risk!

4. Getting a payday loan.

Extremely short term or "payday" loans from companies such as Green Bear Loans do have a bad reputation but are they really as bad as everyone thinks? Although the rates of interest are very high they are designed to be repaid in an extremely short time period so an Annual Percentage Rate is not always an accurate depiction of what will be paid back. For example 1990% APR sounds like a massive rate of interest. However as the loan is paid back quickly this is not really representative. For example £300 borrowed over 1 month would equal a total borrowing of  £375 so the actual interest rate is 25%This may be ideal if you need a short term loan very quickly and will be able to pay it off with your next pay packet.

The benefits of a loan like this are that you can usually get the money quickly and easily and a poor credit rating may not necessarily go against you. Although there are some unscrupulous companies out there many firms who do proper financial checks and will not lend to anyone who would be unable to pay back the loan.

in collaboration with Green Bear Loans

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