Lending is when you give something to someone with the intention of having it returned. You can lend many things, for example; a laptop, a wheelbarrow – you can even lend a hand if someone needs your practical help rather than a physical object.

But what about lending money? When it comes to money, lending isn’t as simple as taking something and then just giving it back. Often there is a charge for borrowing money because ultimately, it has a cost to the lender. After all, no one gives out money for free – not even the tooth fairy!

Lending money and interest payments

You might be lucky if you’ve got generous or trusting friends and family, (and if you don’t need to borrow to large a sum) as they will probably lend money to you without charging interest. However, more formal arrangements such as with a bank or credit provider will require an interest repayment and potentially other charges for using their service.

The amount of interest you pay for your loan varies massively across the credit sector. Small loans like payday loans often have high interest rates on a relatively small amount of money whereas a bank loan tends to have a much lower interest rate, often on a larger amount of money. Nevertheless, it’s not always sensible to go with the lowest rate of interest.

What are the types of money lending?

Money lending comes in various ways. There are credit cards, bank loans, overdrafts – even financing a car is a form of lending as the car company is effectively giving you a loan for the car, and then over time you pay this money back.

There is also a form of money lending which falls under the term High Cost Short Term Credit (HCSTC). This is just as it sounds; it is credit that you borrow for a short period of time and repay at a high interest rate. A common form of HCSTC is a payday loan.

What is High Cost Short Term Credit?

HCSTC might sound like an unattractive principle at first because no one really wants to pay a ‘high’ amount of interest, however loans with smaller interest rates, such as bank loans, are often only available for much larger amounts of money, so although the interest rate is smaller, you’ll end up repaying more over time – especially if you only need to borrow a few hundred pounds. Mainstream credit can also be difficult to secure if you don’t have a great credit history.

Some lenders won’t lend their money on a promise and they need some guarantee that they will get their money back. Lenders such as pawn brokers will use collateral. They give you a loan and you give them a valuable item in return for the loan. If you fail to repay your loan in full and on time, they will simply sell your valuable item, so they don’t suffer any losses. It is the same with a mortgage – if you fail to keep up with your mortgage repayments, the bank will repossess and sell your house.

Unsecured loans

There are some lenders who provide unsecured loans – which in a way could be seen as lending on a promise. An unsecured loan is a loan that doesn’t require collateral (such as valuable items or your house), so if you don’t repay your loan, you won’t lose something that is important to you. Sounds good, right? Unfortunately, lenders don’t want to lend money to people who they believe won’t be able to repay it so you may have to show that you’ve been a responsible borrower in the past to get this type of loan.

Why is my credit file important?

This is why your credit file matters. Lenders can look at your credit record, see if you seem like a reliable customer and then base their lending decision on this information. But don’t fret if you haven’t got a perfect credit history, because payday loans are also known as bad credit loans, meaning they are available to people who have a bad credit record. This is because lenders understand that you can’t always get credit from just anywhere, and just because your credit file has a few negatives on it, it doesn’t necessarily mean that you won’t be able to repay your loan. As lenders, we understand that there might be various reasons for having a bad credit score and that some of these reasons may no longer be applicable.

Quick lending

We also understand the necessity for quick loans. Occasionally, an unexpected cost arises that needs immediate attention, which is why we transfer your loan within 15 minutes of your loan application being approved, regardless of whether it’s a weekend or bank holiday. Of course, your application is subject to credit checks and affordability checks to ensure we act as a responsible lender, and you must be honest in your application form and make sure you will able to meet the repayments before you sign your loan agreement contract.

It’s important to remember that short term loans are not a form of income and should not be treated as such. If you are having recurring financial problems you may need to speak to a free debt advice service, or even have a chat with family or friends as they can often help you through the process of sorting out your debt. Some free impartial debt advice services include National Debtline or StepChange.