You need a quick injection of cash, but you’re not sure what type of financing will be best for you? The most popular forms of credit in the UK are still credit card, installment loan and private loan. Last time, we looked at installment loans and credit cards and their pros and cons (the full article can be found here). Today is the turn for a private loan. So what is a social loan and how is it compared to an installment loan?

Private Loan in the UK

A private loan, otherwise known as a community loan, is a form of credit in which the lender is a private individual. Private loans in the UK, known as Peer to Peer Lending, are a form of credit that is still gaining popularity. Why?

Social loans are above all widely available. The network will find a lot of offers from private lenders offering us their services. The choice is wide, so everyone will find something for themselves.

A private loan is also a type of loan without checking your credit history. Private loans operate on different principles than traditional loans. Since lenders do not have to be regulated by FCA, there is no need to check the credit history of a potential borrower before granting him a loan. Thanks to this, you have a better chance of getting a loan than with a bank loan.

What’s more, private loans are characterized by an individual approach to the client. The lender and the person lending the money individually set the amount and terms of the contract before making the transaction. What’s more, a private lender (especially if it’s our friend) may be more willing to grant you a loan with better repayment terms than a bank.

What are the disadvantages of a private loan?

First, a private loan is still a risky form of lending for both the borrower and the borrower. Private loans in the UK are unregulated, and therefore both borrowers must face the risk of fraud. On the one hand, the borrower is at high risk because he is not entirely sure whether he grants a loan to a trusted person and will not suffer losses. On the other hand, the borrower may very well come across a fraudster who will hide many hidden costs and a high interest rate in the loan agreement.

Secondly, social loans have quite high interest rates. Social loans, especially for the borrower, come with some risk. To protect against potential loss, the borrower often charges the loan with a rather high interest rate. So a private loan will not always be a cheaper option than a traditional loan or payday loan.

In addition, a community loan will allow us to borrow limited amounts. Here, too, the risk for the borrower is not insignificant – few people want to risk by giving a stranger a loan for a high amount. Therefore, if you are interested in a specific amount, you should consider taking out a secured loan.

Despite the widespread belief that private loans are a quick way to get extra cash, the formalities involved in obtaining a loan are quite complex. It is true that the person lending you money will not check your credit score, but they must carefully check your data and information regarding your employment so that they can be sure that you will not disappear with the newly borrowed money. This type of verification takes longer than credit check, so be prepared for a longer waiting time for a response.

Installment loan

A loan, otherwise known as a consumer loan or payday loan, is a type of financing offered by financial institutions, banks or private companies. UK lenders are regulated by FCA (more on this here). What are the advantages of installment loans?

Getting payday loans in the UK is quick and easy. Completing the online application takes no more than 3 minutes, and we get a response from the lender almost immediately. Most lenders will deposit cash the same day, straight into our account.

What’s more, an installment loan, be it from banks or loan companies, will allow you to borrow larger amounts than most social loans. Loans in the UK allow you to borrow up to £ 5,000, and most private lenders prefer to borrow smaller amounts.

All financial institutions and brokerage companies that grant loans in the UK are regulated by FCA. Thanks to this, you can be sure that the lender is a proven institution and that you as a borrower are protected by law. Private loans are not protected, making it easier to come across cheaters.

In addition, an installment loan enables debt consolidation. If you pay off several loans at the same time, it may be a good idea to consolidate them under one loan. This will allow you to get more control over your finances – you can convert several debts into one loan, with one repayment date, fixed installment and extended repayment time. With such a loan it will be much easier for us to plan your monthly expenditure.

And what are the disadvantages of payday loans?

Similarly to private loans, payday loans are charged with high interest rates. An installment loan is a form of credit that does not require any form of security from the lender. Lack of a deposit means a greater risk for the lender, and therefore, to insure themselves, the lenders charge the loan a higher interest rate. Nevertheless, with an appropriate credit rating, we’ll be able to get a good deal.

Lenders lending in the UK must check your credit history and credit score before deciding to grant you a loan. If your credit score is not favorable, you may have trouble getting a good loan offer. Although there are many lenders and brokers who offer loans with low creditworthiness, the terms of such a loan will be less favorable for you.

Summarizing:

Both forms of credit have many advantages, but also disadvantages. First of all, it is worth determining whether we care the most – on a favorable offer or on quick access to cash? Before you make a decision, think about the amount you want to borrow and consider both the pros and cons of each solution. This will help you determine what type of loan is right for you.