Sometimes, you may need to borrow in order to make ends meet. Sometimes it can seem like you have no choice but to borrow new money to pay off older debts. However, there are several kinds of borrowing that you should not consider unless completely, unavoidably necessary. The types of borrowing that you should not consider except as an absolute last resort include:
Payday loans are essentially designed as short-term products, and are therefore high interest. Unless you are absolutely, 100% confident that you can pay them back when you receive your next paycheque without putting yourself in financial difficulty, steer clear. Even if you are completely certain that you can do this, there is still a strong chance you can find some alternative solution that does not carry the same high interest rates. Those who can’t pay back the loans within the (very short) terms often get caught in a spiral of taking out fresh loans to cover the old ones. This means the high interest rates designed for short-term borrowing get applied over a much longer period, and the debt becomes rapidly much harder to repay.
Secured loans can be tempting because they offer better interest rates on account of being less risky for lenders. When you borrow using a secured loan, you offer some valuable object as security, usually a house or car. If you are unable to repay the loan, the lender can take possession of that object to recoup their money. This is a very significant risk. If you have trouble repaying the loan you will not just accrue interest that you will eventually have to pay, but will risk losing your car or even your home. Mortgages and car finance options are technically secured loans, but for obvious reasons these are excluded from the rule of avoiding secured lending.
Logbook loans are a very specific kind of secured loan, using your car as security. However, they deserve special mention as they are a particularly risky kind of loan to take on as the lender essentially owns your car until the loan is repaid. If you cannot keep up repayments, the lender can promptly take possession of your car without the need for a court order. On top of that, where most forms of secured lending have low interest rates, logbook loans tend to offer very high interest rates. In essence, a logbook loan amplifies the risks of any other loan secured against a vehicle and does not even offer the attractive interest rates you would usually get in return. The only factor they do have in their favour is that they are accessible to people with poor credit ratings, and unfortunately this can make them look tempting to people who are experiencing financial difficulties.