How Mobile Payments Are Taking Over All Payment Methods

by Magical Penny on April 20, 2016

MISYS3-MOBILEPAYMENTEarlier this April, electronics giant Samsung announced a new partnership with leading POS (Point of Service) manufacturers in an effort to “accelerate mobile payment adoption” among consumers in the US and across the world.

Teaming up with the likes of Verifone, PAX Technology, Equinox, USA ePay and others, the company’s renewed focus on mobile payments looks likely to further secure their status as leaders in the field, with Samsung Pay already being used by over ninety percent of leading retailers in the US, as well as the majority of small, local businesses that accept mobile payments.

Ultimately, if you have your own business you need to be able to take payments in as many ways as possible including credit cards and mobile payments. To do so you need a merchants account and, as with most things these days, you can compare merchant service providers online.

Once you’ve got an account set up you’ll likely quickly notice amongst your customers that mobile payments have already catapulted their way from a niche audience to one of the most widely used payment methods, with many experts predicting that in the next few years, platforms like Samsung Pay and Apple Pay will outrank chip and pin technology, and even good old fashioned cash, as the default way most of us pay for goods and services.

The next evolution in mobile financial management

Along with Apple expanding their own Apple Pay into international markets, and several other major tech firms breaking into the market, the move to a mobile payment society is expected to come within the next decade, something some see as the next evolution in using smartphones to manage our finances.

Again, growing from a relatively small audience to the most prominent method of managing core banking services, mobile banking software was used to move £2.9 billion a week in 2015, a figure which has grown steadily over the past several years, including a .9 increase alone from 2014.

Challenges ahead

Not that the industry didn’t have its challenges. Much like in the mobile payments market, those responsible for creating mobile banking systems had a steep hill to climb in order for digital banking to overtake traditional core banking methods, much of it relating to mass adoption of smartphones themselves. Starting off with just a handful of apps, mobile banking was only able to really take off once more and more consumers were equipped with the technology to use it.

Back in the world of mobile payments, brands like Samsung and Apple are facing similar challenges. As with banking, payments’ biggest growth period will come when users upgrade from older smartphone model and move towards those capable of supporting the latest technology required to make digital payment a success.

Getting merchants on board

Unlike the typical mobile banking solution however, payments have another challenge ahead if they’re to finally succeed in becoming the default method of financial transactions. That challenge is simple: convince more merchants -particularly small business- to come on board.

In 2015, finance provider CAN Capital conducted a survey which revealed that as many as 87% of small business owners questioned were not currently accepting mobile payments.

Whilst that figure is likely to have decreased somewhat in the last year, it still provides a hurdle for Apple, Samsung and their contemporaries that they’re aiming to overcome by espousing the tangible benefits of accepting mobile payments over traditional debit and credit cards.

For one thing, there’s the cost. Whilst accepting mobile does require some initial investment, the overall costs are typically much lower than the often expensive handling fees charged by credit companies, making them a viable alternative to chip and pin for small business owners who need to keep overheads low whilst still keeping up with modern tech.

The advantages for business owners don’t end there either. One of the driving factors in mobile’s increasing popularity over the recent years has been the ability of big name brands like Starbucks using the technology involved to offer discounts and reward loyalty, something the company reports has led to mobile payments accounting for 30% of their business in North America.

Quicker, simpler, more secure

Meanwhile, Apple, Samsung et al have already taken their cues from mobile banking software providers in making much of mobile’s biggest -and perhaps most important- benefit to customers and merchants alike, namely that using a smartphone is often quicker, simpler, and certainly more secure than using a card, or in most cases even cash.

It’s these benefits that have already helped mobile payments make huge strides in taking over traditional payment methods, and -if the experts are correct- will ultimately see Samsung’s dreams of ‘accelerated mobile payment adoption’ become a reality sooner, rather than later.

 

Have you used Apple-Pay or other mobile payment technology?

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Three ways a loan can be a financial benefit to you

by Magical Penny on April 20, 2016

Many people are critical of debt, but taking out a loan can actually be a financially positive thing in the right circumstances. A loan can be a great tool to get back on track on your journey towards wealth. Keep reading to learn how to use a loan for your ultimate financial benefit.

 

Using credit cardsConsolidation Existing Debt

If you have a lot of debt it’s likely you are struggling to keep up with all the repayments, even paying the minimum payments. This can be very stressful and can have knock-on effects in all areas of your life. If you are financially stressed, you may struggle to concentrate at work or the stress could result in your body getting run down and ill. Taking out a consolidation loan can help bring some control back because your monthly payments are reduced. This is possible because the new loan will likely have a longer pay-off period. This is not the ultimate solution to the debt, but it buys more time to turn things around. The interest rate could be lower too, especially if the loan is replacing credit card debts. A consolation loan is like a rubber ring for someone in the sea. It doesn’t bring them safely to shore but it buys valuable time and stops them panicking quite so much, providing some perspective and temporary relief. When you’re not panicking and stressing you can work out a plan, and you can keep the lights on at home and food on the table. You can get loans from banks like Secure Trust Bank, Credit unions (in the US) or Building Societies (in the UK).

 

CarGetting out of Underwater Cars

Buying expensive vehicles on credit is an easy way to get into financial difficulty. A car payment can fool someone into thinking they can afford more car than they actually can. If a car loan is taking a huge bite of your monthly salary, it is also easier to get into debt with other things too. If you are struggling financially, selling that expensive car you have in your drive-way could be a great way to kickstart your new and improved financial plan. However it may be impossible to sell if you owe more than the car is currently worth. This is known as being ‘underwater’.  If you wanted to sell a car that is ‘under water’, you would need to get a loan for the difference between what you owe and what the car can be sold for. It might not sound like a very attractive prospect – being left with debt and without a car – but it’s actually a good thing because once the sale has gone through you no longer have an expensive car-payment, nor a car that is only going to go further down in value. At this point, you should buy the cheapest car possible as a temporary measure until you’re more financially secure and you can gradually move up to a better car over time, paid for with cash rather than debt.

 

cautionPaying for an emergency

In an ideal world everyone should have a rainy-day fund for financial emergencies. But sometimes, that emergency fund is not there and you need an alternative. A loan is simply renting money. Yes, it can be expensive over time, but everyone pays for things they need and want if they value them – and paying for money with money is the same thing! If you really need the money for something, then a loan has a purpose. The key thing is to be conscious of the choice, rather than ‘falling into debt’. You need to formulate a plan to pay off the debt with intention and speed. You also have the right under section 94 of the Consumer Credit Act 1974 in the UK to repay early in full or in part although you may need to pay 1 or 2 more months’ worth of interest, as stipulated in the loan agreement.

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Trading in the markets with Binary Options

by Magical Penny on April 18, 2016

If you’ve done any investing, or even if you haven’t, you will know that the price of investments go up and down. This fluctuation is due to the willingness of investors to buy and sell at any given price.

fluctuating marketFor example, imagine you are buying oil and the current price is £100 for whatever unit you’re buying in. If you predict demand in oil to grow, then you expect the price to go up in the future to meet that demand. If others also believe this to be the case they might be willing to buy the same amount of oil for a bit more, say, £110. Over a short amount of time, the price has now already gone up. What people think collectively about a certain investment is called ‘market sentiment’. If investors hear some news that suggests the demand for oil is going to go down, or supply is going up, then they may believe the value is going to go down and therefore they may sell their investment. If lots of people start wanting to sell, then they would be willing to accept less in order to make the sale, fuelling the fall in prices. 

This is example is about one commodity, oil, but the same mechanics are in place for every investment, from the biggest companies, to the smallest little grain of wheat.

Over the long term, investors tend to make money as the value of most investments go up, but some people make money in the short term by trading – taking advantage of the volatile up and downs of the market over short time periods.

Trading in the markets with Binary Options

You don’t need a huge amount of money to trade on the fluctuations of the markets. One simple way is to use Binary options to trade price fluctuations in multiple global markets. The great thing about binary options is you know what you can win and lose – it’s not open-ended like traditional options.

Binary options are different from traditional options because they may have different payouts, fees and risks. One of the most common binary option is a “high-low” option also known as fixed-return option due to having an expiry time and date and a strike price. If a trader predicts correctly on the market’s direction and the price at the time of expiry is on the correct side of the strike price, the trader is paid a fixed return regardless of how much the market moved. Get it wrong and the investment is lost. The benefit is you always know how much you can gain or lose with each trade.

Depending on where the trader thinks the market is going, they can buy a call (predicting the market is rising), or a put (predicting the market is falling). For most high-low binary options the strike price is the current price or rate of the underlying investment, for example the FTSE 100 index or a currency pair (GDP Vs the USD for example).

bitcoinYou can take advantage of the fluctuations in the markets by using a broker like Binary Uno. Brokers make their money from the percentage discrepancy between what they pay out on winning trades and what they collect from losing trades. One of the interesting features of Binary Uno is that as well as using cash to fund your trading, you can use Bitcoin. This of course adds another dimension to your trading and investing because the price of BitCoin fluctuates.

You can read about my Bitcoin investing journey here! 

For long-term investors, the fluctuations in the markets can be a source of stress and it’s advisable to ignore the ups and downs as much as possible. But short term-looking investors and traders can take advantage of the ups and downs and make money, so if you want to have a go, then good luck!

 

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Paying Off Debt – Your Journey To Freedom

by Magical Penny on April 15, 2016

save early, save oftenWhen you’re paying off debt, the first and most obvious step is work out how much you owe.

Put it all down on a piece of paper or open up up a spreadsheet in Excel or Google Sheets. You need to know where you stand, and also draw a line in sand and say to yourself: No More Debt. Otherwise you won’t make any traction as you pay down your existing debt. If your debt is increasing each month, getting to a stable position should be your first priority. Cut back your lifestyle as much as you can, and look for ways to increase your income. Getting these two variables in balance will stop your debt from getting any bigger.

That’s the first step.

If you can’t get to this first step, you might need some more serious intervention. Details of which can be found on the Government’s website. 

 

Next you need to get to the business of paying down your debt.

Consider Consolidation

If the interest rates on your loans are high and you have lots of different debts, it might be helpful to consolidate them into a single loan with one manageable monthly repayment from a bank or a company like Everyday Loans. This can make the loans more affordable in the short term but over the long term it could cost you more interest as the debt repayment period is often longer. However, if you promise yourself you are getting rid of this debt for good, consolidation can be really helpful in ensuring you can afford the monthly repayments and therefore will help to stop you from defaulting on your debt payments and might help you afford other important payments like rent and utilities.

ImportantMake a Plan

Whether or not you have consolidated your loans or not, next up is the work of developing a plan to pay down your debts. Always ensure you are paying minimum payments on all your debts first of all. Then focus on one particular debt and start paying it off.

Some loan providers don’t allow you to make extra payments on your debt. If this is the case then put some money aside each month into a savings account specifically for debt repayment.

Once the account has built up to the level of one of your debts you can call the loan provider and ask what the total amount needed to pay off the debt in full. There may be some extra fees like one of two month’s interest, but it is worth it. Once that debt is paid off, you will have increased how much you have in your pocket each month as you are no longer paying the minimum payment and interest. Now that one loan is paid off, start paying extra (or saving extra) to pay off the next debt until you’ve tackled them all!

Work out the best order for you

FocusThe order that you pay off your debts is up to you.

Mathematically it’s cheapest to pay off the debt with the highest interest rate first, but this can be hard psychologically if the balance is very high – you could be paying off the loan for months and not feel any progress. That’s why some advisers recommend paying off debt based on the size of the debt, smallest to largest. It might cost more overall, but you get a feeling of progress quicker as little debts are paid off.

You could also pay off the debts in a different order depending on how much you hate the debt. Maybe you want to pay off a debt to your parents first, even if it has no interest.

I’ve written a more in-depth article about how to pay off debt and the order to pay off your loans here.

In the end, the order doesn’t matter – do what works for you – the important thing is you are taking charge and improving your situation for the better!

Good luck!

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Don’t be Skint – Money Management Tips for Students

by Magical Penny on April 12, 2016

When you head off to university or college you may think your lectures will contain the most important information you need to learn for your future life.

Certainly your subject is going to be important, but living away from home for the first time will also require learning other things like cooking an edible meal and learning how to use a washing machine! (I did!)

Another important, but sometimes over-looked topic you will definitely be learning over the course of your degree is money management.

Money management is one of the most important lessons to learn when you first move out of home and get your own place away from your parents. When you first receive your student loan it may be the most you’ve ever had in your bank account, but the funds will need to last you all semester!

money making ideasIt might be boring but setting up a budget can be really helpful.

Open up a spreadsheet (Google Sheets or Excel work great) and make a list of all the things you need to spend money on. By writing things down you can see what you can and can’t afford. You don’t have to be super-specific –broad categories are fine, but update it now and then to check you’re still on track. It can actually get quite addictive and fun, (honest!), and the control will help you feel less guilty about spending money on all those nights out!

A budget is particularly important as many higher education students who are not budgeting find it difficult to manage their money because their loan and grant payments are made each term, whereas bills are often due monthly or weekly. This can often result in money running out towards the end of term.

This happened to me once or twice when I was at university. Thankfully, my kitchen cupboards were relatively full so I didn’t go hungry whilst I waited for my part-time job to pay me, but it certainly made me get more serious about money management!

Get help if you’re in trouble

If you’re encountering any financial difficulties, seek guidance as soon as possible. It’s usually easier to fix things the sooner you deal with them. You could also consider using a service like Smart-Pig for student-specific same-day loans. You can borrow up to £350 until your next UK student finance, NHS bursary or SAAS payment. The interest rate is higher than a bank overdraft, but the interest is capped, unlike other same-day loans, so it could be useful to help avoid going hungry when you need help.

autumn statementConsider how to increase your income

Getting a job is best way to top up your bank account, meet people, and gain skills. During my time at university I worked on campus asking graduates to donate to the university over the phone. I gained confidence; have hundreds of conversations with graduates about what they had done after university; raised hundreds of pounds for the university; and got paid higher than the minimum wage, which felt like an achievement at the time!

Keep your eye out for jobs on campus in the student union, or in local businesses near the university. You don’t want a job to get in the way of your studies too much but a part-time job can be great.

Think out the box too. Can you generate cash with a skill?  Perhaps you can tutor other students, or can build a website for someone, or design something? When I was at university I got a few singing gigs (yes, really!)  which supplemented my student loan and meant it wasn’t always baked beans and rice every night.

Lastly, don’t overpay income tax

You may think students don’t have to pay income tax but they do. Thankfully the personal allowance (the amount you can earn in a year without having to pay tax) is quite high: £11,000 for the 2016/17 tax year. If you are paying any income tax but haven’t earned as much as this, make sure you claim the tax back from HMRC.

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International Investing, FX, and Currency Risk

by Magical Penny on April 11, 2016

I don’t need to tell you the world is a big place. But I do need to remind you that when you are considering the makeup of your investment portfolio you need to consider where in the world your investments are, and how the location of your investments can affect the returns you may receive over time.

Saving moneyReading a lot of investment commentary coming out of America, investors in the States typically have a large proportion of their investments in the US stock market.

It is for a good reason.

The US stock market is the largest in the world and has some very strong performing companies. For an American investor they can invest exclusively in the US stock market and can build a well-diversified portfolio that is likely to perform well over the long term. Even so, many investment advisers recommend a small proportion of ‘International’ exposure for added diversification and are lured by the potential of extra returns by hoping on rapid growth in emerging markets. However, advisers often caution having too much exposure to international stocks because of the added risk of ‘currency risk’.

 What is currency risk?

Currency risk is the potential risk of loss from fluctuating foreign exchange rates when an investor has exposure to foreign currency or foreign-currency-traded investments.

For example, I’m in the UK. If I bought an American investment that traded in dollars, say $100. I would need to convert my pounds into dollars to buy the investment (currently £70).

Let’s imagine I got a great return of 100% and doubled my money, so my American investment is now worth $200. In order to cash out and spend my return I would need to sell the investment and then convert the dollars back into pounds. If the exchange rate had stayed the same, the $200 would now be worth £140 (70*2).

However, if the pound/dollar ratio had changed, my return on my investment would be different. Perhaps $200 could only buy me £60 in the future?

Currencies ‘strengthen’ and ‘weaken’ against other currencies all the time in response to economic forces.

 

This means that when you invest in stocks and shares that trade in different currencies, your portfolio not only has market risk (the company could lose value), but also you have to consider currency risk (your home currency might not be able to buy as much foreign currency as before).

british pound notesIf you are a UK investor or investor in a smaller market than the US, you do not have the luxury of avoiding currency risk as our markets are relatively small compared with America and to provide good diversification, international stocks might take up a bigger proportion of a typical investment portfolio.

Some investors mitigate perceived currency risks using financial instruments that move in the opposite direction to currency fluctuations, but this is only really worthwhile in very large portfolios with significant international exposure. For bigger investors there are also companies such as Sucden Financial who provide foreign exchange to companies needing to hedge their currency risk and to help with liquidity.

The good news is over the long term, the markets tend to self-regulate when it comes to currency fluctuations as the very presence of currency risk can create an opportunity for investors who follow the interest rates between two countries and the relationship to exchange rates. For example, if interest rates are higher in the UK, other currencies are likely to fall in value relative to the British pound as when interest rates increase in a particular country, international currencies flow into that country to take advantage of the higher yields. This pushes the value of that country’s currency higher.

Certainly the world is a big place, but we are more connected than ever before and financial ripples in one market can reach another. Understand the types and level of risk in your portfolio to be a better prepared and informed investor.

 

 

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What is an Option? Stock Options Explained

by Magical Penny on April 10, 2016

The internet has changed so many things in recent years, not least in the financial space. No longer do we have to visit a branch for most of our banking needs – even telephone banking is becoming less popular than simply getting what we need to do online, and through apps on our smart phones.

business IPOSimilarly, investing in the markets is more accessible than ever too. I set up this site, Magical Penny, in part in response to this huge change. Anyone can get started investing from the comfort of their own home, and even when you’re out and about with a finger swipe on a smart phone.

The 21st century investor has a lot of choice, too. There’s long-term investing strategies in stocks and shares ISAs and pensions, and there’s shorter term strategies, where investors trade in the markets with hopes of growing their pennies more quickly through actively buying and selling shares and derivatives like options.

What is an Option?

An option is a binding contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.

For example, imagine you found a great house but you didn’t have the money straight away to buy. You could talk to the owner, and pay him some money to keep the house available to you for a couple of months and agree a price of £120,000 for when you may wish to buy it.

The money you would give him at the start would be the ‘option’ as you have kept the option to purchase the house at a later date for a certain price. The important thing about an option is it gives you the right to buy something but not an obligation to buy it at the end of the agreed period.

The same idea works with stock options. You can purchase an option to buy a particular stock for a certain price at any time over the set time period. If the price of the stock goes up, you have the option to buy at the original cheaper price. If you exercise the option, you can buy the stock at the cheaper price, and then immediately sell the stock at the current higher market rate. If your profit on the sale is more than the price you paid to buy the option, then you’ve made money! If the price of the stock is less than your option price, you don’t have to exercise the option, and the option simply expires. In that case, all you’ve lost is the money you paid for the option as you never actually held the stock itself.

The attractive thing about options is you have the potential to make more money than if you had simply bought the stock to start with. The challenging thing about short-term investing is it takes skill and good timing in order to navigate and understand the ever-fluctuating prices.

You also should consider keeping up with the latest news and market analysis to help you trade. One site where you can do this is Banc De Binary. With longer term investing, you don’t need to worry as much about the ups and downs of the market because you are investing to participate in the general upwards trend of the stock market over time.

The internet is a powerful thing and has made investing and trading more accessible than ever before. But with great access comes a great responsibility to do proper research and ensure you invest responsibly and understand the amount of risk you are taking on with your investing. Good luck in growing your pennies!

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Do you know the cost difference between living in a house versus a houseboat?

by Magical Penny on April 5, 2016

Buying a house is often the most expensive purchase you will make in your life. And even if you rent, living in a house has fixed costs to consider.

The average 2 bed house in the UK will set you back around £190,000, with a monthly payment of £780. And that’s not all. It is estimated that spending 1% of the house’s value on maintenance per year will ensure it keeps its value. Add to that the costs of utilities and insurance and your budget is squeezed further. Whether you rent or own your house, one considerable cost of living in a house is council tax. The national average council tax bill currently sits at £1300 per year.

All those costs, and you’re stuck in the same place!

Have you ever considered a more alternative lifestyle of living on a houseboat at a boat moorings instead? Certainly a house boat will not increase in value like a house tends to do, but the costs involved provide some food for thought!

The real magic is working out what really matters to you in life, and what is worth spending your magical pennies on. Is a house-boat life for you?

Thanks to BWML for providing this infographic:

Boat vs House

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How UK Investment in the FinTech Industry rose by 35% in 2015

by Magical Penny on March 23, 2016

BuyingThose paying attention to the world of financial technology can’t fail to have noticed the unprecedented growth experienced by the industry in just a few short years.

In 2015 alone, the number of FinTech startups in the United States valued at over one billion dollars grew to almost fifty and counting, with many more companies in the peer-to-peer lending and alternative finance markets predicted to see their value sore throughout 2016.

With Silicon Valley somewhat predictably leading the charge in FinTech innovation, and with reports estimating that American investment in financial technology is set to increase to at least $4.7 billion over the next two years, this is hardly surprising.

Yet whilst American enterprises may be the talk of the town in an industry which has garnered some serious attention in both the finance and tech worlds over the last few years, they’re not the only ones with cause to celebrate.

Earlier this March, a report by Innovative Finance revealed that UK investment in FinTech companies rose by 35% in 2015, with at least $901 million ploughed into the sector across 72 separate venture capital deals.

The figure puts the United Kingdom second in the league table for the biggest number of deals done, with the US once again ahead of the pack. In terms of the total amount of dollars invested, the UK now ranks in third place, after both America and China.

laptop smallHow did it happen?

According to the data provided by Innovative Finance, a large percentage of $901 million was invested in financial software solutions created by those in both the aforementioned peer-to-peer lending and alternative finance sectors, as well payment and remittance segments, the three together accounting for 60% of VC investment in UK FinTech. Writing in Tech City News, reporter Yessi Bello Perez records that the volume of investment rocketed to 74% when challenger banks were included in the figures.

 

Who’s responsible?

Contributing the majority of the VC funding to the UK market are names like British peer-to-peers lenders Funding Circle, TransferWise, WorldRemit, and RateSetter, as well as social trading firm eToro (headquartered in Cyprus but with a base in London). Money transfer services Azimo and The Currency Cloud, Italian-owned MoneyFarm and crowdfunding investment specialists Seedrs also made a significant impact on UK companies leading the way in creating unique banking software and other online financial services.

 

Going forward

The 35% increase in 2015 seems well in keeping with current industry trends which, if they continue the way they are, could well see investment figures swell even further throughout 2016 and 2017.

Over the past few years, the likes of financial software provider Misys and other industry veterans have continued to earn acclaim for their new approaches to solutions for banks and financial institutions, perhaps proving that the industry as whole is ready to embrace innovation.

With Misys et al working side by side with new startup firms, the sector as a whole could well serve to grow even further in value over the next few years, especially if (and when) the money put into the sector begins to yield dividends for the likes of Funding Circle and WorldRemit.

In a February 2016 article on Growing Business startup blog, WorldRemit founder Ismail Ahmed told writer Henry Williams that he has “no doubt” that the company’s $1 billion investment was a good idea, leading some to speculate the company -and others like them- could funds into a UK FinTech industry which Mr. Ahmed describes as having “an absence of the frivolity that sometimes characterises a burgeoning tech scene.”

By doing so, these investors could well help financial software startups in the UK to further gain even further ground on a US industry which still takes most of the credit for the recent explosion of interest in FinTech investment.

Exciting times are ahead.

 

 

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What you need to know before applying for a loan

by Magical Penny on March 23, 2016

ImportantNo matter how good you are at saving, sometimes life throws you a curve-ball and you may need to consider applying for a loan to help you out. But first, run through this list of considerations to be better informed about what you need before you sign on the dotted line.

 

Work out how much you need

It might seem like a simple question but working out how much you need is a really important first step. It’s important you do not borrow too much, as debt costs money and unnecessary debt is expensive. When you borrow money you are paying for the privilege of being able to use someone else’s money to fix your problems today. It may be tempting to borrow as much as you are offered by a lender but if you do, you could find yourself with debt that you may struggle to repay. Instead, have a figure in mind before you look for what is available and stick to it.

Similarly, there is a risk that you borrow too little! You may have been unrealistic with how much money you need and later find you need to take on more debt, perhaps on a more expensive loan, when you could have simply borrowed a realistic amount at the start of the process and saved yourself hassle and money.

 

What type of loan is most appropriate?

 A secured loan is one held against your property. The most common types of secured loan are house loans (known as mortgages) and car loans. They are normally for more than £10,000 and if you fail to repay, the company who owns the loan can take away your property. As the debt is secured on property, it is less ‘risky’ for the lender so the interest rate is often lower than an unsecured loan.

An unsecured loan is a loan that is not secured against any property, but that does not mean you don’t have to pay it back! Unsecured loans are often smaller than £10,000, and typically have a higher interest rate than a secured loan.

A third type of loan is a guarantor loan. Whilst technically it is a type of unsecured loan, there is an element of security on the loan – the guarantor. A guarantor is someone who is also responsible for the loan if you can’t pay it. A guarantor loan is good for people who need a loan but can’t get one on their own: either they have a bad credit score, or they don’t fit other lending criteria. If you need a loan, can’t get one the traditional way, but have a friend or family member who is happy to act as guarantor, a guarantor loan could be the solution for you. One company that provides a guarantor loan is Trusttwo. If you do go this route, be sure to make sure the guarantor fully understands they are responsible for the loan if you can’t pay it for any reason. Don’t let debt ruin a relationship.

If you only need to borrow over a very short term – say 12 months or less – then you may be better off with a0% interest credit card, if you qualify for one. By making a purchase or balance transfer onto a 0% card you will have the length of the introductory offer in which to pay back the money you owe without paying any interest. Don’t be tempted to keep spending until you have cleared the balance however, because at the end of the 0% period you will be charged interest at a much higher typical rate.

Caution: If you make a transfer of the balance of an old credit card to a new card at a bonus rate or low rate, do NOT make purchases on the card. If you do, they are likely to have their own interest rate and any repayments you make to the card might not go to pay off the purchases but rather they might go on paying off the transferred balance. This could mean you may end up paying high interest on your purchases after all until you have paid off the balance-transfer amount.

Don’t Take the Advertised Rate at Face Value

Lenders often advertise an attractive ‘typical’ interest rate for the loan. However this is not a guaranteed rate and depending on your circumstances the loan could be more expensive than you might have initially thought. This is because most loans have what’s called ‘risk based pricing’. If you are a more risky individual in the eyes of the lender, you will pay more with a higher interest rate.

 Improve your credit score

If you don’t need a loan straight away it could be worth trying to increase your credit score before applying for a loan. You can do this by reducing the amount of debt you have compared with how much debt you have access to, and ensuring your existing debt repayments are always on time. If you do these two things, over time your credit score will go up and the rates available to you next time you need a loan will be lower and therefore cheaper.

 

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