Family finance: How to borrow money during a crisis

There are lots of reasons why you may need additional financial help or funds – but sometimes it’s because of a crisis situation (whether personal or global). A personal crisis can look different to everyone, but there are certain situations that would concern even the most level-headed of us:

  • Reduction in income
  • Increase in bills
  • Illness
  • COVID crisis

Even without living through a pandemic, any of the reasons for a personal crisis above can be stressful. Equipping yourself with the knowledge on how to borrow money during a personal crisis can provide you with some comfort in troubling times. Although we can save and plan for moments like these, sometimes they come unannounced.

During the current COVID-19 pandemic, 70% of families have had to cut back on basic food and essentials, with half of these falling behind on rent or bills. So if you want to borrow money during a crisis, how do you go about this?

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Logbook loans

If you own a vehicle, or are coming to the end of your finance agreement, you may be eligible to apply for a logbook loan. This type of loan allows you to borrow funds against your car or van – but that doesn’t mean you lose your vehicle. Your logbook, or V5 registration document, is passed over to the logbook loan company, who retains this until you’ve made the repayments on your loan.

Many companies can approve the funds the same day, which is helpful if you are going through a personal financial crisis. Logbook loans can be a helpful way of borrowing money if you have a poor credit history.

If you’re thinking about taking out a logbook loan, consider some of the eligibility factors first:

  • You own your car or vehicle outright (or are almost clear of finance)
  • Your name is on the logbook or V5 documentation
  • Your car is insured and you have a valid driving licence
  • You’re receiving a regular income (or your co-signing with someone else who does)
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As with most borrowing, you’ll need to pay interest back on top of the amount you borrowed. However, this is clearly explained to you before taking out the logbook loan and most responsible lenders will outline how much you can borrow, based on your affordability.

Personal loans

There are lots of companies who offer personal loans, from high street banks and building societies, to the notorious payday lenders.

However, if you do have poor credit history or you’ve made late payments on bills or loans before, many of these high street lenders are unlikely to approve your application. This can be frustrating.

Personal loans are also not backed by any collateral, making them ‘unsecured’. Unlike logbook loans and remortgaging, you don’t use an asset that you own as collateral against receiving the funds. It’s usually based on your credit rating or sometimes if you have a guarantor.

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If you have struggled with securing credit in the past, or a reduction in your household income has meant you’re not being offered the same deals as before, it may be worthwhile considering other borrowing options, aside from personal loans.  

Home equity loans

A mortgage is a type of loan. Banks will lend you part of the cost of your home, which you pay back over a number of years. Most people will put down a deposit, or down payment, on a house initially, to reduce the cost of their monthly mortgage, as well as prove to the bank they can commit to paying.

Taking out a second mortgage, or a home equity loan, means that you borrow a lump sum of money against your property. Lenders will usually work this amount out based on the value of your property to a certain percentage.

Usually, you would need to apply through a mainstream lender, which can be difficult if you’ve been disapproved for credit since purchasing your home – or even missed mortgage payments.

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Credit cards

There are lots of different credit cards available – not just from the high street banks, but even supermarkets. Eligibility for credit cards varies from lender to lender, as does the amount they’re willing to lend you.

Credit cards can often have high interest rates, which can sometimes catch people out when it comes to making repayments. It can also be tempting to continue spending on credit cards, once you’ve moved past your personal crisis.

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