Forex vs Cryptocurrency Trading: Investment Comparison

In the past, people willing to invest would either buy an equity in a local company or find a stock market broker in order to invest in a corporation. Nowadays, however, there are many other ‘standard’ choices that are rapidly gaining in popularity. With the rise of Bitcoin in 2017, more and more people are interested in buying cryptocurrencies. On the other hand, with so many online forex brokers, it has never been easier to become a forex trader. All in all, both of these methods of making money have their advantages and disadvantages.

Starting out

Even though it is quite easy to start on any of these two paths, the truth is that starting out the right way is not as easy as you might have thought. In order to make data-driven decisions instead of plain guessing, you need to get a grip on things that you’ve never handled before. So, you need to start educating yourself on these topics and, in order to do this, you need to have access to various reliable sources. For starters, you should start following reputable cryptocurrency news sites and learning a thing or two about forex trading features.

When it comes to the comparison of the two, it is arguably easier to grasp the forex market, seeing as how it requires you to acquire a lot less technical knowledge. Sure, one may argue that even people with little to no knowledge of the blockchain technology have managed to make a fortune in the world of cryptocurrencies, yet, relying on luck instead of knowledge is a gamble and not an investment. Ideally, you could find a mentor. Someone with enough experience in these fields in order to break down some of the most important industry-relevant information.

The potential for profit

The first thing that comes to mind when speaking about any investment is a profit potential. When investing in cryptocurrencies, a lot of people hope to discover a rising coin while it’s still cheap and then keep it until its price skyrockets. In this way, investing in cryptocurrency would be able to bring you an incredible ROI, seeing as how you could start with modest means and eventually amass a fortune.

A similar thing is applicable to the forex market, as well. One of the greatest misconceptions about this market is that you need to have a fortune in order to make noticeable gains. People claiming that clearly have a superficial knowledge of the forex trading in general. Latest forex platform allows you to use forex leverage, which means that you can work with figures 500 times greater than what you’ve invested.

Position vs. day-trading

Another massive difference between forex trading and cryptocurrency trading lies in the strategy you decide to adopt. You see, forex market is highly volatile, which is why a lot of people decide to go for day-trading instead of position trading. Apart from the danger (or loss of sleep) that comes from leaving your investment in the air overnight, most day-trading losses end at 1% of your total account value, while even the most successful trades end at about 6%. In other words, you depend on a huge number of smaller transactions and might remain profitable even with only 30%  of successful trades.

While there are people who dynamically trade cryptocurrencies, there is also a general consensus claiming that in order to really make a splash in this world, you have to A) recognize a growing coin and B) wait for its value to skyrocket. As you can see, this is much closer to position trading. Of course, we have to stress that there are a lot of people out there who day-trade cryptocurrencies and position trade on the forex market.

The ICO phenomenon

The next trend that makes people fall in love with the idea of cryptocurrency trading is the ICO (Initial Coin Offering) phenomenon. This is a high-risk-high-reward scenario in which you discover a cryptocurrency in its infancy and trade your more regulated coins (Bitcoin, Ethereum, Ripple) in exchange for great quantities of this coin. If the coin in question makes it through, you stand to win an amazing ROI. There are reliable sources of blockchain news ,that offer good information about the ICO investments and newest blockchain technologies on the market, so make sure to do some research before anything else.

Diversifying your portfolio

At the end of the day, we already discussed that both cryptocurrencies and forex market allow you to start out with relatively modest funds, which is why there’s no real reason for you not to pursue both. If you don’t trust both of these trends to the same degree, there’s no reason for you to invest in them 50/50. Instead, you can allocate at least a minor part of your assets to the other trend. This helps you diversify your portfolio and, consequently, make it substantially safer.

Conclusion

The last thing you need to keep in mind is that the money you stand to invest does have a potential of making some money on its own, and yet no investment is 100 percent safe. Therefore, do not dip into your emergency savings account or your 401K. As we have already stated, you should only trade with the money you can afford to lose.

from Finance Girl http://www.financegirl.co.uk/forex-vs-cryptocurrency-trading-investment-comparison/

How to open an online broker account and start investing

The following guest post on setting up with an online broker is from up-and-coming UK personal finance blogger YoungFIGuy.

There’s a lot of talk at Monevator Towers about investing in shares to build for your financial future.

But how do you actually go about getting started?

Back in the old days, to trade investments you might pop down to the local stockbroker on your High Street or set up a telephone brokerage account.

Nowadays though, it’s all done online.

To invest in funds¹ or to buy individual stocks or investment trusts, you need to open an online broker account (also known as a platform or – less commonly – as a fund supermarket.)

It can be quite intimidating to open such an account if you’ve never done it before. But once you know what to do it’s easy.

Here’s a guide on how to set up a brokerage account.

Decide what type of account you need

There are three types of broker accounts for investors:

1. Stocks and Shares Individual Savings Accounts (S&S ISAs)
2. Self-Invested Personal Pensions (SIPPs) or other types of personal pensions
3. Trading accounts

There is little practical difference in terms of the physical mechanics of operating these accounts.

There are however a few investing differences.

The first is that both S&S ISAs and SIPPs are tax-efficient wrappers. This means that they confer tax advantages over standard share trading accounts. There are annual limits as to how much you can put into them.

The second difference is that there are slightly fewer investment options in a S&S ISA compared to a SIPP and fewer again than in a trading account.

The last difference is that money invested in a SIPP is tied up until retirement age, whereas with a S&S ISA you can move money in and out with a few limitations. You’re entirely free to move your money with a trading account (but watch out for capital gains taxes!)

Which account you need then will depend on the access you’re after, what your tax situation is and what investments you intend to make.

Generally it is always best to open a S&S ISA over a standard dealing account, at least until you start running up against the ISA contribution limits. You can read more on the pros and cons of ISAs versus SIPPs at the YoungFIGuy blog.

Find the right broker / platform

In choosing your broker you want to get the broadest investment options with the best possible customer service for the cheapest price.

In practice, there are some trade-offs.

See this beginner’s guide for what to look for when choosing a broker.

Monevator has been slaving away for several years to maintain an up-to-date comparison table for UK brokers. This compares all the charges for each broker. Loyal readers chime in with their personal experiences with the various options.

If you don’t know which broker to go for, the comparison table is a good place to start your research.

Set up an account

To set up your account you’ll need:

• Your National Insurance (NI) number
• Address details
• Bank account and debit card details
• A pen and paper

You will then need to go through the following stages.

1. Select the type of account you want to open

When you go to your chosen broker’s website, they’ll offer you those three different account options we looked at: S&S ISA, Trading Account, or a SIPP.

For example, here are the options from the broker we will use to illustrate the rest of these steps.

We’re going to run through opening a S&S ISA. There is little difference between setting up either of the three account types though, in practice.

2. Fill out your personal details

3. Decide how you want to fund your account

There are three ways to fund your account:

• Invest a lump sum – You set up the account with a one-off payment, which you can top up with more money later if you want to.

• Regular monthly savings – You create a Direct Debit to transfer a set amount each month to your account. This can often be as little as £10-£25 per month, but check with your chosen platform. It’s possible to increase the amount transferred each month after the account is set up.

• A combination of the two – Fund the account with a lump sum and top-up with regular monthly savings.

Depending on the option you chose, you’ll need to fill out either your debit card or bank account details.

4. Decide what to do with your initial money

The next step is optional at this stage. You’ll be asked if you want to immediately invest the money you’ve put into the account into a fund or shares.

The investment options available will depend on the type of account you’ve set up (ISA vs SIPP vs trading account) and what broker you have opened an account with.

If you’re not sure where to invest yet, leave it in cash for now.

If you need some help in deciding what investments to put your money into, have a look at the Slow and Steady model portfolio for inspiration.

5. Choose what happens to your distributions

Depending on what exactly you invest in, your funds or shares may pay out distributions (dividends or interest) over time. The last step is to decide what happens to these distributions.

There are typically three options:

• Keep the distribution as cash in your account
• Have distributions automatically re-invested into your investments
• Have the money paid straight into your bank account.

If you’re not sure what you want to do, choose to keep the cash in your account. You can always decide what to do later.

(There are rules around withdrawing money from and putting money into both ISAs and pensions. Make sure you know all about these restrictions before you take any money out of those accounts.)

Getting stared with your new broker account

At some point you’ll be given some log-in reference details and such like. Make sure you remember these, or you could be locked out before you begin!

You’ll then usually have to wait a few days to begin playing around with your shiny new account.

Your broker will send you some letters to you in the post. You should expect two or three letters. They’ll usually arrive within a couple of working days. (Brokers act quick when they want your money!)

The first letter will usually confirm your account number and other details and that you’ve set up an account. The second will give you a PIN or password to gain first-time access to your account. You may get a third letter if you’ve set up an ISA. This will be a copy of your ISA application form.

Once all that’s arrived you’ll be able to log into your account.

A few pointers

Once you’ve got your account set up, you should do a bit of admin to make sure things run smoothly.

Every broker account will have an account administration menu, labelled ‘my account’ or ‘account settings’ or similar. Here you’ll be able to view and update all the information and options we went through in setting up the account. It’s worth taking five minutes to make sure it’s all correct.

The next bit of admin is to find out where you can access all the documents for your account. Usually, it’s under ‘documents’ or ‘portfolio history’ or similar. Consider setting up a folder on your computer to save new documents as they come in. Good records can save a lot of hassle down the line, particularly when it comes to tax affairs.

You’ll usually receive a yearly or bi-yearly statement showing all your investments. There are various other documents to look out for over the year, too:

• If you have a SIPP you’ll receive a pension illustration – a projection of your future pension pot.

• If you have a trading account, you’ll get what’s called a Tax Certificate, which gives you the information you need for completing a Self-Assessment tax return.

• When you buy or sell an investment you’ll receive a Contract Note which sets out exactly what you’ve bought or sold, how much you paid or received, and the settlement date of the trade.

You may want to download these documents to that desktop folder you set up for safe record keeping.

When you are ready to add or withdraw money from your account, you can usually find the option to do so under ‘cash’ or ‘add/withdraw money’. This menu will also typically let you access some sort of a cash statement showing how much cash is in your account, as well as how your money has moved around as you’ve bought or sold investments, paid charges, and received distributions.

Over to you

If you have yet to set up an online brokerage account to start investing, then hopefully this guide has given you the confidence to get going.

Of course, many of Monevator readers are grizzled investing veterans. What tips or guidance would you give to somebody looking to set up their first broker account? Please share your suggestions in the comments below.

Like what you’ve read today? You can hear much more from YoungFIGuy over on his own website, where he discusses how he achieved financial freedom before he was 30.

1. Variously known as Unit Trusts or Mutual Funds or Open-Ended Investment Companies, which are all basically the same thing for our purposes here.

from Monevator http://monevator.com/how-to-open-an-online-broker-account/

Weekend reading: Death to the Lifetime ISA?

What caught my eye this week.

I would love to start here with an analogy drawn from the film Synecdoche, New York. But I fear I’m quite possibly the only person on Earth to have ever seen it.

Allegedly others have. Reviews exist on the Internet. Some rightly hail Synecdoche a work of genius. A few fools label it pretentious twaddle. But I’ve never met these critics – I even saw the film in what seemed to be an empty cinema – so I can’t rule out those reviews coming from some weirdly highbrow Russian bot farm.

Anyway, Synecdoche, New York contains multitudes, but the bit I would like to be alluding to – which I’m going to explain in words instead, which is obviously ideal in an analogy – involves the lead character’s attempt to film a story drawn from his own life by rebuilding his life – and his house, and the surrounding city – inside an enormous film set.

Which is how I found myself proceeding when I tried to write about the Lifetime ISA.

You think I’m joking?

I’m not!

Lifetime sentence

I published a piece explaining how the Lifetime ISA worked in April 2017. This long post was what remained after I hacked out a big rant about the silliness of the product – and another multi-thousand word discussion about who should make use of one.

Instead, I just gave some vague pointers, then concluded:

In the next post we’ll see exactly who the Lifetime ISA might be good for, and who should say “no thanks”, and back away slowly.

And to this day I have never finished that follow-up.

My draft is huge, contains multitudes, and is unfinished. The knowledge of it sitting there has often given me writer’s block and stalled other articles. The thought of comment after comment pointing out this or that issue if I did publish it without chasing down every last use case makes me freeze up. Instead I kick it down the road for another week or six.

Even unfinished the article wanders widely into all kinds of areas of investing – risk, time horizons, shares versus property, taxes, early retirement versus traditional pension saving, employer pension contributions – because the Lifetime ISA forces all this onto the table.

That might sound like a good read, but it is very sub-optimal. We already have a couple of million words across more than a thousand Monevator articles trying to cover all that, and there are still holes. This Lifetime ISA draft article manages to be both insanely verbose and yet still not sufficiently comprehensive to ensure nobody is misled.

Now you might be thinking:

“Okay TI, I get that the Lifetime ISA is a bit convoluted with the pension and house buying bung combo rolled into one wrapper, but I managed to figure out that I should / should not use one.”

I believe you! It’s just about possible to figure out whether an individual should open a Lifetime ISA, if you’re there with the individual.¹ After two or three hour-long conversations for example I got there with my ex.²

But you really do need everything on the table to make this decision, in a way that’s not true of any other financial product I can think of. Which means that while it might have been straightforward-ish for you to decide what you should do, generalizing advice for even broad groups is very difficult.

Seriously, the Lifetime ISA is like some kind of beneficial yet malevolent magical goblet in a Greek legend. One minute it’s refilling itself with ambrosia. The next minute it’s chomped your arm off.

I believe this complexity is why even today only around half a dozen financial service providers are offering Lifetime ISAs (and only a couple the cash version). The others may fear a mis-selling scandal. Or, like me, they were hoping it would be killed off sooner rather than later.

Which brings me finally to this exciting news from Treasury Select Committee³ as reported by ThisIsMoney:

The Treasury Committee has today called for [Lifetime ISAs] to be scrapped due to their ‘perverse incentives and complexity.’

My heart just skipped a beat.

To throw out a spoiler for a film you’ll never watch, Synecdoche, New York ends on a gloomy note. The director’s project proves fatal. Don’t fire this one up for Netflix and chilling.

But could my own half-finished epic have a happier ending?

MPs might throw me a lifeline – if they can stop bickering for five minutes about when to start stockpiling prosecco – and give the Lifetime ISA the unceremonious death it deserves.

From Monevator

Our updated guide to help you find the cheapest broker for you – Monevator

From the archive-ator: Wealth preservation strategies of the rich – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!⁴

Household debt ‘worse than at any time on record’, reports ONS – Guardian

Trump just called off his trade war with EU. Score one for the globalists – Slate

F.I.R.V.L.? 75-year old investing legend doesn’t want to spend “the rest of my life” chasing the S&P 500 – Bloomberg

UK pensioners’ income growth outstrips wage rises, figures suggest – Guardian

MPs call for huge pensions overhaul [Search result] – FT

Warnings growing ‘down valuations’ may be a red flag for house prices – ThisIsMoney

Leasehold prisoners press government for release [Search result] – FT

Products and services

Clydesdale offering some first-time buyers loans of 5.5-times income, with just a 5% deposit – Guardian

Banks could be forced to set a minimum interest rate on savings accounts – BBC

FCA proposes changes to rules for crowdfunding platforms – FCA

Thousands of expat Barclaycard customers to have their accounts closed – ThisIsMoney

Got £1,000 spare? Ratesetter will pay you £100 [and me a cash bonus] if you invest it with them for a year – Ratesetter

The cheapest way to watch the Premier League football – ThisIsMoney

Lloyds Bank tells student using his ‘free’ overdraft for three months would cost him £1.3 BILLION – ThisIsMoney

Comment and opinion

Profiting from investment regret – Morningstar

The $20 swim – Mr Money Mustache

When bond yields throw you a curve [Canadian data but relevant] – Canadian Couch Potato

The robo-advisers aiming to help you budget for a mid-life sabbatical – Bloomberg

There’s no such thing as mosquito week – A Wealth of Common Sense

The right place at the right time – Of Dollars and Data

Passive investing is improving governance and profitability, studies show – T.E.B.I.

Three keys to retirement happiness – Vanguard Blog

How to invest a windfall [Some US-specific advice, but relevant] – Portfolio Charts

Modelling what happened if you retired just before the last big crash – Retirement Investing Today

Bethany McLean: Business gone bad and the art of persistence [Podcast] – Invest Like The Best

Swedroe: The size factor was not dead – sometimes you have to grin and bear it! – ETF.com

Are Smart Beta funds premised on faulty beliefs about investing ‘rules’? – Abnormal Returns

Five ways to measure your active investing performance – UK Value Investor

Investing biases are not natural laws. We are not all the same – Behavioral Scientist

Kindle book bargains

Einstein: His Life and Universe by Walter Isaacson – £0.99 on Kindle

Alan Sugar: What you see is what you get by Alan Sugar – £0.99 on Kindle

The Honourable Company: History of the English East India Company by John Keay – £1.99 on Kindle

Brexit

Barnier rules out key UK customs proposal – BBC

The idea we can hoard food for Brexit is just another fantasy – Guardian

British food stores ridicule Brexit stock piling plan [Search result] – FT and [snarkier] FT

The dire consequences of a No Deal Brexit [Search result] – FT

A humiliating Brexit deal risks a descent into Weimar Britain – Guardian

It’s getting hot in here…

Why is it so hot? [Video] – Guardian

Productivity plunges when temperatures soar – NPR

How does the 2018 heatwave compare to that of 1976? – BBC

Preliminary findings point to a climate change contribution, say scientists – Guardian

The science of why heatwaves are so dangerous to human health – Wired

Off our beat

Britain’s largest gold nugget found on Scottish riverbed – Guardian

Mesut Özil on the conflicts he’s endured in representing his country at football – Twitter

We Rate Dogs‘ reconciliation: Peace can break out on the Internet! – Vox

Ban fat-shaming show Insatiable, its critics cry. But none of them have seen it – Guardian

And finally…

“You can no more learn to invest through reading a book than you can read a book about heart surgery and perform a triple bypass.”
– Michael Batnick, Big Mistakes: The Best Investors and Their Worst Investments

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1. More precisely, whether they should USE one. I’ve said anyone under the 40-year old age limit should open one with £50, simply to ensure they have the future optionality.
2. Yes, I’m a thrill a minute of a boyfriend. Perhaps that’s why I am now an ex…
3. Yes, I said ‘exciting’. Again, form a queue ladies.
4. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

from Monevator http://monevator.com/death-to-the-lifetime-isa/

Top money-making tips for millennials

There is no doubt that millennials are one of the more important groups within society. With a desire to not only work hard but also to help people and enjoy their lives, millennials have made quite an impact. If you count yourself as part of this generation, you may well be looking at how to make money but without the dull, run-of-the mill type of job of generations past.

If so, then the tips below should give you some great ways to make some extra cash!

Millennial money-making ideas

Any millennial will want to make their own money to enjoy life but may not want a standard job to do so. After all, how can you travel when you feel like it when you have to be at work at 9am every day? Check out the list below for tips on different ways to make money:

• Stock trading – a great way for any millennial to make money is by investing in stocks and shares. This is not only gives you total freedom to work when you like but also an intellectual buzz as you look into what shares to invest in or where the market might head next. Of course, it is also pretty good for making money – if you get it right! If you do decide on this, be sure to always get the latest trading analysis so you can make decisions based on the latest news and facts.
• Casino sites – many millennials love to play slot or table games at one of the many online casinos. If this applies to you, this is a simple and easily accessible way to make some cash. It is also fun and uses the latest technology, which is great for any millennial! Just be sure to gamble responsibly and always stop when it is not fun any more.
• Freelance writer / blogger – another great money-maker for any millennial is writing. You could opt to become a full-time freelance writer and write articles for other people. Alternatively, you could write your own blog and monetize that to generate income. Both can be done anywhere in the world, with just an internet connection and laptop, so are great for travel-loving millennials.
• Video content marketing – sharing video content on YouTube is a way in which millennials are making extra money. If you set up your own channel and post content that people find useful, you can make some serious cash on sponsorship or advertising space.
• Rent your home out – if you have your own place in a popular town or city, why not use a site such as Airbnb to make some money off it? Make sure that it is clean and tidy for when guests arrive, then sit back and watch the money roll in.

Lots of ways to make some extra cash

As you can see, there are many fabulous and quite simple ways for any millennial to make money. Even better – they all let you do it in a creative, unique way that doesn’t include working in an office, and lets you redefine the usual workplace rules. This kind of freedom is amazing and opens up life to be enjoyed to the full.

 

from Finance Girl http://www.financegirl.co.uk/top-money-making-tips-for-millennials/

How to find the right finance course for you

If you’ve decided that you’d like to enter the finance space, then there are plenty of diverse career options available in this industry – so you’ve got a lot of choosing to do ahead of you. From a career as an accountant to a job as an investment banker, this industry has a lot of different businesses, branches and specialisms – so there’s a lot to be thinking about. Whether you want to study in Manchester or go somewhere else, there are many location options on offer.

Decide on study levels

Some finance industry careers are much more study-heavy than others, so you’ll need to incorporate consideration of this into your decisions. If you want to become a chartered accountant, for example, then you’ll probably need to study one of the major qualifications in this field, such as the ACCA (Association of Chartered Certified Accountants) or the CIMA (Chartered Institute of Management Accountants). Some professions in the finance industry, though, don’t require a financial qualification, at least at the outset: investment banking graduate schemes usually only require education to degree level in order to complete, though it’s possible that you’ll need to study for qualifications later.

Think about location

Studying finance in the UK is a common choice, so you’ll be spoiled for options when it comes to picking a city in which to learn. Some people choose to focus on the capital, and it’s easy to see why: with London enjoying the presence of a number of major firms such as Deutsche Bank and Royal Bank of Scotland, there are plenty of opportunities for work placements and internships here. However, other vibrant UK cities also have educational institutions that are equally as good. In Manchester, for example, the London School of Business and Finance (LSBF) provides everything from MBAs to investment qualifications. The LSBF offers free foundation certificate in the AAT Level 2 for new accountants, which gives it a real edge.

Consider duration

Finance courses come in all shapes and sizes – and durations. A typical Bachelor of Arts degree in a subject such as finance, for example, will probably take three years to complete. However, from there on in, it gets trickier: an MBA at Birkbeck takes 18 months part-time, while a CIMA qualification usually takes about four years in total, though this can vary. Before committing to a course, you should work out exactly how you’d manage it practically. If you have family or work commitments, for example, then agreeing to a full-on three-year course may not be the wisest move, unless you can work out a compromise of some sort.

Finding a finance course that suits your needs is essential. There are a whole host of qualifications to choose from, and there are plenty of different locations in which your study can take place – all of which means that there’s a big decision ahead. By carrying out research and looking into everything from duration to course type, though, you’ll be able to narrow down the list and embark on the ideal financial career of your dreams.

 

from Finance Girl http://www.financegirl.co.uk/how-to-find-the-right-finance-course-for-you/

Using plastic overseas? Always PAY IN EUROS (even if it says 0% commission)

Update 24 July 2018: Martin wrote this blog back in 2013 and while the rates have changed, all the logic is still correct.

I couldn’t believe my ears. While filming in southern Spain for the new series of my show, the producer told me he’d found a cash machine offering 0% commission if you chose to withdraw in pounds. In theory, that’d mean PERFECT exchange rates.

from Martin Lewis' Blog https://blog.moneysavingexpert.com/2013/03/using-plastic-overseas-always-pay-in-euros-even-if-it-says-0-commission/

Guarantor Loans for Young People

Making your way into the real world isn’t cheap. Luckily, there’s some great lending options out there for those starting adult life. Read this post to find out your options.

Garnered affection for guarantor loans?

Summer Solstice is behind us, Love Island nears its finale and Brexit is well… Brexit. Despite the sun setting on the UK’s favourite jamboree of adult blather (we’re not talking about the latter), for a lot of people, reality looms hard as we approach Summer’s twilight. While for most folk under the age of 16 this means a fresh pair of school shoes and a new timetable, for many young persons who have just finished their degrees and are about to set sail into the unchartered waters of adult life, financial burdens weigh heavy.

‘There is a decisive difference between the loans supplied by private lenders and the loans supplied by a government agency’ once wrote Henry Hazlitt. ‘Each private lender risks his own funds.’ One wonders what Hazlitt would make of the financial predicaments which face so many young people today.

Whether they’re graduates, starting a family or simply wanting to make their own way in the world, the route into *ahem* real adult life can be difficult to navigate without imbursement from the bank of mum and dad. Consequences may follow. Bad credit ratings lay waiting for those who pay back their loans late, default on payments and a plethora of other reasons. Yet, with so many high street lenders willing to take advantage by offering loans with nauseating APR rates and demand for property as an indemnity against the loan, where and what can we turn to?

What loans should young people take out?

The repercussions of a bad credit rating are often heavy. This may often mean that many young people needing to take out a loan to pay rent arrears or any existing debts have their options slashed for what loans they can take out. But which ones should they go for? Payday loans are seen as dangerous due to the interest rates thrust upon those who are usually in a precarious financial state. While they may be a useful means of covering any existing short-term debts, high APR rates imposed by lenders are commonplace and are masked by the ease at which they can be taken out.

What is the best option for young people?

Rejoice! I give you the more the desirable guarantor loan. These are essentially loans that operate on a trust basis where any existing credit history from the recipient is unnecessary.  As a result, guarantor loans can seem a very attractive proposition for those with a poor credit score, with young people often integrated into that category. This can be an ideal medium for people who need mid to long-term loans that may not normally qualify for loans due to a bad credit score.

Further to this, the interest rates on guarantor loans are much lower than other bad credit loans such as payday loans. A study by the BBC in December 2013 found that Payday loans are typically 1000% to 6000% APR. It’s important to stress that with guarantor loans it is highly unlikely that there will be any concealed charges by the guarantor, thus providing the recipient with another layer of security that may lay hidden with the T&Cs of another loan application.

Who can be a guarantor for a loan?

You may be wondering who can be a guarantor for a loan? Most loan providers will require these criteria for someone to be an eligible guarantor:

• A UK resident and homeowner
• Between the ages of 18-78
• Have good credit
• Have a UK based bank account and debit card
• Be in receipt of an income
• Be financially independent of the borrower (i.e. of independent financial means and with own bank account)

To summarise, this means that any person who meets these criteria can be your guarantor. This can take the form of a friend, relative or partner so long as they are NOT your husband or wife.  This can offer a great deal of flexibility for those seeking guarantor loans, as the recipient will be in a position to find a guarantor who will be willing to meet one’s loan commitments if ever the need arises.

Though for this to work well it is important to consider the financial position and personal circumstances of the guarantor and if they will be able to offer the support that you may need should the situation ever arise. This should involve taking into account their financial suitability, meaning that for your application to be accepted your guarantor will need a good credit history. This should also involve ascertaining that the guarantor understands their responsibilities towards the recipient and any potential financial risks that may fall upon them should you be unable to make a payment.

Also, you must ensure that your guarantor is employed in the UK and earning over £400 a month. So that means you can’t have any supposed alibis who may have drunkenly said to you that they’d give you helping hand if ever you needed it. Though this may strike fear into the hearts of many a young borrower this requirement is a positive as it goes some way to ensuring that whoever you decide on being you guarantor can provide an adequate safety net.

However, fear not guarantors. Though this may come across as a hefty burden all is not as it seems. First and foremost, it’s important to realise that your credit rating will not be jeopardised if you are suddenly hampered with the borrower’s loan repayments. This is because the role of a guarantor is simply to make the payments that the borrower cannot pay in full. Therefore, it is unlikely that a guarantor will have to repay a loan in full, as their responsibility will be to pay up to enough to complete the sum that the borrower cannot.

If you’re looking for a loan, and don’t have the credit score to match, a guarantor loan may be the ideal lending form for you.

from Finance Girl http://www.financegirl.co.uk/guarantor-loans-for-young-people/