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How much can I
borrow?
Payday loans,
doorstep loans and secured loans - which one and how much even with bad credit.
Know your (credit) limits even after you've already
crossed the line.
Adverse Credit - How Much Can You Borrow by:
Joe Kenny
Just because people have bad credit, that doesn't
mean they can't borrow any money. Adverse credit means that people have a poor
credit rating, perhaps because of:
- defaults on loans or credit
- arrears on loans of credit
- County Court Judgements (CCJ's) because of
defaults or arrears
- fraud
- bankruptcy
But even this doesn't mean that people are barred
from getting credit. While it can be difficult and interest rates won't be the
best, there are many credit products that target people with adverse credit.
Here are some of the loans people with adverse credit can get.
Payday Loans
Payday loans are loans of small amounts (usually up to £800) intended to help
people manage short term financial difficulty. There are no credit checks. All
people need to qualify is to be able to prove that they are employed and that
their salary has been paid into their bank accounts for the last two or three
months.
For every loan, a fee is added to the amount to be repaid. This may not seem
like much, but it equates to a high annual percentage rate (APR). This gets even
higher if borrowers miss payments or extend the loan. Payday loans are intended
to be repaid within the next pay period of two weeks to a month. Any extension
results in an additional fee until borrowers could end up owing several times
the original amount. Payday loans must be repaid before another one can be
issued.
Doorstep Loans
People can borrow even more from doorstep lenders. These are lenders, sometimes
based in the high street, who come round to people's homes to discuss what they
need to borrow and hand over the cash on the spot. At the same time, they agree
on the interest to be paid and the repayment terms. These loans are often repaid
in weekly instalments.
The interest rate on doorstep loans is prohibitive, and can be upwards of 250%.
However, the people who take out doorstep loans may feel they can't get credit
anywhere else. If payments are missed, doorstep lenders are likely to seize
possessions and to resort to threats and violence. Meanwhile, the amount owed
continues to mount up. In one case, a doorstep loan of £5,000 became an enormous
debt of £300,000. The borrowers were able to prosecute the lenders with the help
of the Office of Fair Trading. Illegal loans carry a fine of £5,000 and a prison
term of up to two years.
Secured Loans
Secured loans offer perhaps the biggest loan amount. These are available to
homeowners and are secured on the value of the equity in the house. This is
calculated minus any existing debt. Because the lender has a charge on the house
as security for the loan, interest rates are often lower than with unsecured
loans and loan amounts are higher. Some people are able to borrow up to 125% of
the value of the equity in the home. This works well as long as property values
continue to rise. Loans of this size are not regulated by the Financial Services
Authority. Although secured loans offer the most money to people with adverse
credit, they are also risky. This is because poor repayment of the loan could
result in the loss of the borrowers' homes.
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