Pitfalls of Personal Loans of Last Resort: For People With a Low Credit Score Why Pay a Credit Broker?

In the UK, and presumably elsewhere in the world, there are companies which are in business to sell financial products, which may be totally unsuitable, for people with a low credit score and whose life has been blighted by personal debt.

Personal Debt Solutions

Many of these organisations run powerful and seductive marketing campaigns in newspapers, magazines and as more people look on-line for personal debt solutions their adverts appear on the first page of all the major search engines.

On the surface it’s difficult to distinguish these companies, which offer a reasonable,’ typical’ APR on “unsecured loans, bad credit no problem” from the many other reputable lending organisations out there.

Credit Broker

The first point to check is, are they credit brokers or do they actually lend the money. It should say somewhere on the website. A credit broker will act as a go-between someone looking for a loan or mortgage and lenders and may charge for this service.

The companies discussed here are brokers and as such source loans from lenders which generally charge very high levels of interest, perhaps up to 50% APR, a figure far removed from the one used in the advertising.

Administration Fee

These companies make money from consumers by charging an administration fee, normally around £50, for their services. Many borrowers however are unaware at this stage that the company is a broker and not a lender and the confusion is made worse when they are told by, lets call them XYZ company, that they have been accepted for a loan.

What this simply means is that XYZ have accepted them as a client to broker a deal for them with another financial institution. It doesn’t mean the borrower has been offered no credit check loans. At this stage people will have parted with their £50. Typically loan application paperwork from lenders, many charging high interest rates, will follow over the following weeks.

It is at this stage most people will realise that it’s not quite what they thought it was. Some will continue with the process and some will back out and face the daunting prospect of getting their money back. XYZ are legally entitled to a very small part (£5) of the administration fee but the balance must be returned.

There is considerable evidence from on-line forums that this is a difficult process and many people have had to seek help from the UK Trading Standards Institute or through the Small Claims Court.

Personal Loan

It’s important to note that there are many reputable brokers out there but why would anyone searching for a personal loan need use a broker? It is entirely possible for anyone looking for a loan to complete the process themselves without charge.

The advice from a number of financial experts is to research, research and research. If XYZ company looks good but its not a well-known name check it out on-line, there are for example many forums dedicated to financial matters and someone somewhere will have dealt with XYZ before.

For people looking for objective, free and independent personal debt advice why not look at the advice from the sources listed below before applying for that loan of last resort.

This information is obtained from the reputable sources listed below but is not offered as financial advice.

UK Trading Standards Institute

Martin Lewis moneysavingexpert.com

Consumer Credit Counselling Service (CCCS)

Small Business Loans – Get Government Assistance with an ARC Loan

Small businesses are far less able to absorb costs or losses than larger corporations. In light of the tough economic market, the Small Business Administration (SBA) has created America’s Recovery Capital Program also known as the ARC Loan Program. This short-term loan is a one-time deal to help small business owners return to profitability.

The ARC Loan Program Ends September 30, 2017

An ARC loan is a temporary program authorized and created by the Recovery Act. The program ends on Sep. 30, 2017 or when funding ceases, whichever comes earlier. If a small business can qualify for an ARC loan, these loans are interest free, short-term infusions of cash up to $35,000 that can be used to pay both principal and interest on existing loans or qualifying debt; freeing up cash flow for other areas.

ARC loans are not made directly by the SBA but by commercial lenders. The SBA does however back the loan 100%; it has no lender fees and after a 12-month deferral period, repayment can be made over a 5-year period for the principal amount only . To be eligible for an ARC loan, small business owners must:

  • Have a viable business that has shown a financially documented profit for the previous two years (less if the business is newer).
  • Be able to provide future cash flow projections for the coming two years including the ability to repay all debts, including the ARC loan.
  • Must not be more than 60 days past due on loans that the ARC loan will be used for
  • Have an acceptable business score determined by the SBA.

How to Apply for an Arc Loan

The ARC Loan Program is designed for established businesses facing an immediate and provable financial hardship. The commercial lender will work with the business to document and confirm all reported hardships, according to established SBA categories used for assessment.

Small businesses that wish to apply for an ARC loan need to contact a commercial lender and provide a DUNS number along with the required application and supporting documentation. If a business does not have a DUNS number (Data Universal Numbering System) – used by the SBA to determine a business’s credit score, one can be freely obtained from Dun and Bradstreet.

As with any loan process, applying for an ARC loan is not a simple process and will take some time and effort on the part of the business owner. However, if a small business can qualify for this particular loan, the money can be used for a variety of purposes such as secured or unsecured coventional loan repayments; capital leases; business credit card debt and even home equity lines of credit, provided it is business related.

Finding Unsecured Loans vs. Secured Loans: Two Loan Options for Different Financial Situations

For most people, loans are a fact of life. Whether car loan, mortgage, college loan, or personal loan, everyone needs money for big purchases or debt consolidation every now and then.

The financial world breaks loans down into two categories: unsecured loans and secured loans. Which loan type the debtor chooses depends on his or her financial circumstances. For example, a homeowner who seeks debt consolidation may elect a secured debt consolidation loan to pay down his or her debt.

What Are Unsecured Loans?

An unsecured loan is any loan that is not backed by an asset (collateral). The most common unsecured loan is a personal loan for use in situations such as college tuition, medical expenses, or to pay down other debts.

Unsecured loans are based primarily on the debtor’s credit rating. They generally carry less risk and are cheaper than secured loans. However, unsecured loans can sometimes prove difficult to qualify for if the debtor’s credit rating is less than stellar.

What Are Secured Loans?

As opposed to unsecured loans, a secured loan is any loan that is backed by collateral. Mortgages and car loans are prime examples of secured loans. The debtor pledges the asset against the secured loan until the secured loan is fully amortized.

Unlike the unsecured loan, secured loans are based not simply on the debtor’s credit rating but also on income. Secured loans carry more risk then their unsecured counterparts, and they are more expensive. Yet at the same time, secured loans are generally easier to qualify for because they factor in income as well as credit rating.

The downside to the secured loan is the risk that the creditor could take possession of the asset in the case that the debtor falls behind on monthly payments. The recent upswing in home foreclosures is a prime example of creditors repossessing homes from debtors who could no longer afford their mortgage payments.

Car repossessions are common as well when debtors can no longer afford their monthly car payments. In this case, the creditor takes over the secured loan and seizes the asset. It is not uncommon for a car to be repossessed right out of the debtor’s driveway in the middle of the night.

Where to Find Unsecured Loans or Secured Loans

People who need a loan can find both unsecured loans and secured loans at their lending institution or online. Popular financial websites include E-Loan, LendingTree.com, and Bankrate.com.

Another loan option for those who have incurred debt is the debt consolidation loan. Debt consolidation loans combine debts such as college loans, credit card balances, and personal loans into one manageable loan package.

Debt consolidation loans can take the form of either a secure loan (e.g., home equity loan, cash-out refinance, auto loan refinance) or an unsecured loan (e.g., personal loan).

In summary, the most common type of loan is the secured loan which includes car loans, mortgages, or other loans where collateral is pledged by the debtor.

While the secured loan is more expensive and carries more risk, the unsecured loan is used in cases where the loan is not backed by collateral such as a college loan or personal loan.

Ultimately, the type of loan selected by the debtor is dependent upon the debtor’s financial status and tolerance for risk.