City : Money, Housing and Benefits : Loans
What is a loan?
A loan is where you borrow money from another person or a company and you have to pay it back.
Most loans build up interest, meaning you will have to pay back more than you have borrowed depending on how long it takes you to pay it back - the longer you take, the more interest can build up.
Below we've listed some of the companies and organisations that offer loans and what they involve...
A credit union is an alternative way of saving and borrowing money. It’s different to a bank or doorstep lender because you join a credit union, save money with them, and after a period of time you might be able to take out a loan from them.
Loan sharks are illegal moneylenders who often charge very high interest rates – you can check if a company is licensed to lend money on the Financial Conduct Authority website and report a loan shark to the government, here.
If you spot a loan shark, or have borrowed money from one, you can report them anonymously.
BUT - it's important to remember that the term ‘Loan Shark’ is also sometimes used to describe legal money lenders who also charge very high interest rates, such as payday loan companies.
A Payday Loan is a short term loan that is paid directly in to your bank account. You pay this money back by the end of the month - it's main aim was originally to tide people over till pay day!
These have had a lot of bad press recently due to their usually high interest rates. If you are desperate and have had a month with an unexpected expense then they can help, but try and only use a payday loan if you're certain you can pay it back in time and it won't leave you in a spiral of debt!
Before taking out a payday loan: ask yourself is ‘Why do I need this loan?’
> If it is because you are always struggling to get to the end of the month with your pay packet then think about changing how you budget.
> If it is because you have had an unexpected expensive month then think about how you will save in the future to avoid having to take out a loan.
County Court Judgement
Someone who is owed money - and has made every effort to get it without success - can apply to the County Court...
- Once the money-lender has applied to the County Court, the Court will get in touch with the debt owner.
- A summons is then issued to the debt owner requiring a response - this can be either paying the debt, or asking the court to cancel the judgement if you do not believe you owe the debt.
- If the case proceeds, the court will decide whether there is a valid debt to pay. If there is, they will issue a County Court Judgment (CCJ) and this will set out how the debt should be repaid.
- Once a CCJ is issued, the person who owes money must pay the debt, plus a court fee.
- If the debt owner does not repay the debt, the money-lender is entitled to employ bailiffs to seize items to the value of the debt.
Why you don't want one...
- A CCJ will affect a person's chances of getting credit in the future. For example you probably wouldn’t be able to get a mobile phone contract, a credit card, or a bank loan.
- If you can't pay a bill, don't ignore it! If you know you owe money, it's important to act even if you don't know how you will pay. Although it might be difficult at the time, it's far better to say something. You may be able to negotiate weekly repayments, which can be quite small.