With the squeeze on household incomes continuing to eat into new families’ finances many young families are finding it difficult to save money, and in some cases to even cover their day-to-day expenses during certain months. At the same time access to traditional sources of finance have become more restricted than ever. Banks which were stung in the financial crash have in recent years become more reluctant to offer loans to those without a solid credit rating. This can affect people who have yet to build up an extensive credit history, as well as those who are self-employed or who are without a current employer.
While access to bank loans has become more difficult that does not mean that it is impossible to find the funds you need, there are many ways of raising money without going through the rigmarole of trying and failing with the banks.
One option families often use is social lending, it’s been around for quite a while, the idea is similar to the way a loan works at a bank, but the operation is much more streamlined since the scheme operator does not get involved in all the other high street bank functions, but concentrates on offering loans. There are many well established lenders in this market, operators are able to offer savers across the world better rates than most traditional banks. Importantly, it’s not just savers who can benefit as studies consistently show that the rates for borrowers are lower than those offered by banks which makes borrowing for your family even cheaper, in some cases the interest rate is only half as much as that on offer at a conventional bank.
Responsible short term loans
A short term lender typically lends money for up to a year but others might lend you money for as long as 2-3 years. The key is to find a responsible lender which doesn’t make you pay back more than you originally agree to pay, even if you miss payments, which is great when you have a family that can often throw up unexpected costs. Lenders with debt support pages are usually the ones to use above others. Short term lenders have lower interest rates than pay day lenders and also have much lower APRs. They specialise in accepting those who would normally be turned down by traditional lenders such as banks, allowing those with poor credit or families with only one working parent to still get the loan they need.
For many individuals or families seeking credit at their bank it is the lack of an established credit rating that is the major difficulty. Banks don’t like to loan money to anyone who cannot prove their ability to repay the debt a big problem with single parents or families where only one parent currently works. The lack of a credit rating may prevent a bank loaning the money but it doesn’t say anything about the ability of the individual to repay the money. If you are confident that you can repay the loan, and you have a friend or family member who trusts you enough to act as a guarantor for your loan then a guarantor loan may be the best option for you. Your guarantor does not directly lend you the money, they simply agree to make the repayments on the loan if you are unable to do so. As long as you continue to make the agreed payments then the loan doesn’t cost your guarantor anything. What could be better than your parents giving you the ability to provide for your own family? It’s basically family helping family and something you might one day be able to do for your kids.
A credit union is a type of co-operative. They are ‘not for profit’ organisations generally formed around a common interest or bond e.g. young families. They are frequently formed around localities, or professions to offer their members competitive rates on savings and loans. Normally you can only join a credit union if you share the ‘common interest’ with the rest of the membership. There are many parenting groups which run Credit Unions to help members out when times are a little bit tough. It is worth checking to see if there is a credit union for your profession, your local area or common interest.
Pawnbrokers have been one of the growth industries of the last ten years. The National Pawnbrokers Association reports that the industry expanded by 8% in 2012-2013 and that this growth has continued steadily. Pawnbrokers can generally offer better value than a payday loan company, but the interest rate is still likely to be 6-9% per month so while borrowing from a pawnbroker can help your family with a short-term financial difficulty it shouldn’t be considered a viable longer-term option for anyone seeking a way out of financial trouble.