#where can i get a loan #

Can t get a loan? What are the alternatives?

It still can be incredibly tough to get a loan from banks and established loans companies. Cheap loans are especially hard to find which is ironic given how low the Bank of England base rate is at the moment. So what do you do if you re refused a loan? Don t despair we have some alternatives for you to explore.

Remember, when getting a loan you should explore all the options. As well as exploring our alternatives, check out our independent loan comparison service to make sure you get the best deal.

If your credit is good

Zopa

What is Zopa?

Zopa is the first online financial exchange . It works by recruiting people who have money saved and want to earn interest on it by lending money to others who need a loan with reasonable rates. They become members of Zopa and put their cash into a money pot. Zopa then lends this money out to other members at a low rate of interest. Essentially it s people lending money to other people whilst cutting out the banks!

How does it work?

Zopa isn t weighed down by huge running costs like a bank, and so doesn t need to make vast profits on its transactions. It can therefore pass these reductions onto its customers so both borrowers and lenders get a better deal.

Zopa stands for Zone of Possible Agreement. This is the area between the lowest amount one person is prepared to get for something and the most someone else is prepared to give for that thing. What this means when it comes to lending money is:

• Zopa helps people get a good deal as it negotiates a figure that is between the least the lender is willing to earn and the maximum the borrower is willing to pay.
• So if a borrower wants to pay no more than 6% interest, and a lender will only lend for a minimum of 5%, Zopa is able to broker a rate between the two (say 5.5%) that leaves both parties happy.

The company itself makes money by charging lenders and borrowers a fee. Borrowers pay a variable transaction fee of up to £420 per loan, while lenders pay a small annual service fee.

Lenders may lend anything from £10 across any number of borrowers. Borrowers may take out a loan ranging from £1,000 -£25,000 in value. The loan term is typically set as being between two to five years but the borrower can repay early if they choose, without incurring any extra cost.

Getting started

It s easy to apply, you just log on, put in your details and start lending or borrowing. Of course, it is a properly regulated financial institution so everyone has to have their credit checked and you have to have been on the electoral role for at least six years.

However, despite their credit-checking system, they have a more sensible approach than some banks (who judge you not just in terms of your credit reliability, but also your potential in making them money). Zopa is only interested in your reliability, and takes into account a variety of factors (including your credit history, existing loans, current cost of living, affordability of the loan, and so on).

If you pass Zopa s credit-check as a borrower, you are placed into a category (A*, A, B, C or Young). A* s have extremely reliable credit history. C s, while having a reasonable record, are deemed more of a risk.

Young borrowers are those who haven t been able to build a credit history yet and therefore are penalised by banks. Anyone who applies to Zopa and is under 26 years old goes automatically into this category regardless of their credit rating.

Lenders can choose which class to lend to. Generally, the lower your category, the more interest you re likely to have to pay (to cover the increased risk). However, you still can get a very decent rate (as there are fewer overheads to pay).

To reduce any risk to the lender, if you lend £500 or more, your money is spread in lots of £10 amounts across at least fifty borrowers. So if someone defaults, it only affects £10 of the lender s money. In any case Zopa has, as mentioned, a very low default rate and if any repayments are missed, a collections agency uses the same recovery process that banks use.

Credit Unions

What are they?

Credit unions are set up and run by a group of individuals who have something in common for example, they live on the same estate or in the same town, or they do the same job (hence a nurses or cab drivers credit union, for example).

There aren t many credit unions in Britain but they are big in America, Ireland and many developing countries. They re getting stronger here after some recent legislation, but they are still seen as fringe lenders. However, if you have one locally you should certainly consider joining.

How do they work?

They are somewhere between a bank and a co-operative. They offer low-interest, easy-to-use saving and borrowing for their members. Members of the union invest any money they have in savings in return for a good and reliable savings rate. This money is then lent out to other members who need to borrow money at an affordable rate. So everyone benefits lenders get a good rate of interest on their money and borrowers don t have to pay through the roof.

As well as savings and loans, many credit unions also offer current accounts (allowing members to manage their money through services such as ATM machines and Direct Debit). You need to be an established member of a credit union before you can get a loan from them.

The three main aims of a credit union are: to encourage its members to save regularly, to provide loans to members at very low rates of interest, and to provide assistance to members in need of financial help and advice.

They are usually thought of as organisations for people on low incomes but, if you re a saver, a recent Which? magazine report showed that the rates of return are often higher than those offered by the main banks.

The union is completely controlled by members so any profits are ploughed back into the organisation. It is pleasant to know that profits on your transactions aren t being pocketed by City fat cats.

Getting started

To find out if there s a credit union near you, or one that you could join, take a look at FindYourCreditUnion.co.uk

Many credit unions charge you 1% a month on the reducing balance of the loan (an APR of 12.7%). Some charge less, others more (though by law they can t charge more than 2% a month an APR of 26.8%). The size of the maximum loan also varies from union to union.

Find out what sort of loans and interest rates are available from your local credit union by contacting them via the credit union search tool. Most credit unions tend to be flexible over the frequency of your repayments, offering you the opportunity to pay back your loan on a weekly, fortnightly or monthly basis.

You can work out a rough estimate of how much a typical 1% credit union loan will cost you by using a loan calculator.

There are no hidden charges with credit union loans and no penalties for repaying the loan early. Life insurance is also built in at no extra cost so if you were to die before repaying the loan, insurance would cover the cost for you.

Most credit unions can lend for up to five years (unsecured) and up to 10 years (secured). However some lend for up to 10 years (unsecured) and up to 25 years (secured).