There are two primary kinds of loans available on the market today – secured, and unsecured loans. Secured loans are loans in which some type of collateral is used to hold the loan; usually this is the borrower’s home, or perhaps a car in the case of hire purchase. If the borrower defaults on the loan, the lender has the option of taking possession of the collateral. Unsecured loans, on the other hand, do not require collateral to obtain.

Secured Loan Limits and Lenders

In most cases, lenders limit the amount of unsecured loans to between £15,000 and £20,000. Unsecured loans can be used for any reason, from taking the vacation of your dreams to having a medical procedure done, to starting a new business to consolidating debt. Although the lender may ask you what you plan on doing with the money on the loan application, really it is up to you how you use the money once you receive it.

Common lenders for unsecured loans are banks, credit unions, online loan companies and specialist lenders. Generally, lenders want you to have good to excellent credit before they will lend you money for an unsecured loan. You must also be able to demonstrate that you are gainfully employed and can afford the loan payments.

Online lenders often offer better terms than banks or credit unions. Additionally, the application process is often very fast and easy. Generally, you only need to fill out an online application and provide details such as your employment information, the amount of money you want to borrow and what you intend to do with the money. In some cases, you will need to fax a copy of your most recent pay slip to the lender. With online lenders, applications are often approved within 24-48 hours and the money is transferred into your bank account right away.

Despite the ease with which online loans can be arranged, due care should be taken to avoid “Pay Day” loan companies, whatever your circumstances. With typical APR’s in the region of 2,000-8,000% it is an extortionately expensive way of obtaining a loan for longer than a few days and despite the welcoming façade such companies present, they remain dangerous traps to the unwitting.

For individuals who are self employed, it may be necessary to use a specialist lender for an unsecured loan. Specialist lenders are often more willing to work with individuals who are considered high risk, such as individuals who do not have a long credit history or whose income is less stable due to self employment. If you are self employed, you may need to supply copies of your tax returns or business accounts for the past several years to prove your income.

Smart Use of Unsecured Loans

If you decide you want to take out an unsecured loan, do not borrow more than you can afford to repay, and consider other means of raising required capital such as saving. If you fail to meet the terms of the loan, it could be detrimental to your credit history. Even late payments will have a negative impact on your credit and influence your ability to get a mortgage or car loan in the future.

Unsecured loans are often for a term of between two to 10 years and are at a fixed rate of interest. If you find yourself having problems making payments, contact your lender immediately. Lenders are often more willing to work with you to renegotiate the loan if you communicate with them openly and honestly as soon as possible.

Before taking out an unsecured loan, shop around different lenders to find the best loan terms possible. Make sure you completely understand the terms of the loan before signing the loan documents and accepting any payments. A  final precautionary tale to shopping around is that that quoted APR’s are not necessarily the rate you will receive, and applying for a loan will impact your credit rating as it will record a search, even if you later choose not to go ahead with it.

It’s still an insightful read if you have 10 minutes, but I will do my best to make what the prediction was as I’m discussing them if you don’t.

Am I the next world-class financial guru, or am I truly hopeless? There’s only one way to find out! Let’s revisit and update that post…

1. Politics Will Matter to You

My first prediction was that even if politics wasn’t important to you at the time I wrote the article, my prediction was that it soon would be. The General Election had not yet happened and we didn’t have a hung parliament, or the joint ConDem alliance of today.

Whether you are a public or private sector employee; high paid; low paid; unemployed or a student; I reckon you’re paying at least more of a passing attention to politics than you were in 2009. Politics has not played such a direct role in people’s lives for at least a decade and for almost two decades on an economic and personal finance level. I’m too young to remember much about the recession of the 90′s but my parents still remember it vividly. In 20 years time, will you remember who was in power, and just how it affected you?

I suspect you will.

Score: 1/1.

2. Future Defaults Will Bring Credit Crunch Part Deux

I predicted that the fragile state of the lending-side of our economy would have a cascade effect, bringing around a second credit crunch. I reckoned that mortgages and loans at the very beginning of the recovery phase where money was being handed out somewhat freely on advice from the government to businesses to aid the recovery, would go toxic when one of my other predictions happened (I’ll come to this later).

It’s a fine stack of cards that will only take a few loose ones to bring the whole lot down. Money loaned to businesses anew, which then go out of business because of reduced trade, cause a fresh wave of bad debt on banking books. This has always been a possibility but even more so in these times. 15 years ago if someone said to you “In 2010, Woolworths will not exist”, would you have laughed at the absurdity?

So far this prediction has yet to happen, and I am pleased to be wrong on this count. I am going to award myself a minor point though, because I can still see it being l a real possibility.

Score: 1.2/2

3. Government Public Sector Cuts Will Backfire

Unprecedented cuts to all areas of the public sector are currently underway.

While concrete data and statistics are hard to come by, snippets suggest that perhaps more than 250,000 jobs have been lost from the public sector since my post was made. The private sector has taken up less than a quarter of those if the same figures are to be believed.

What happened to the remaining three-quarters? Statistically some will have retired, died, emigrated or otherwise not fall within the purview of my prediction, but I reasonably suspect the vast majority will have ended up on benefits. With Job-Seekers Allowance, Housing Benefit, Council Tax Benefit and other widely available benefits being claimed by a good proportion of those, all the government has effectively done is moved the cost of these people from one budget to another, but also reduced productivity by not having those man-hours available to them for work purposes.

This is a double-whammy for the Government. They’re not saving anything overall, and yet do not have as many people to work at the same time.

A resounding win for me on this prediction, sadly.

Score: 2.2/3

4. The Thrift Paradox Will Hit The UK

This may be a new term to some readers, so a quick overview of the paradox first:

The paradox states that if everyone tries to save more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth. The paradox is, narrowly speaking, that total savings may fall even when individual savings attempt to rise, and, broadly speaking, that increase in savings may be harmful to an economy.

Or, when people have a sharp financial shock, they start saving like crazy, and paying down debt. This causes the economy to contract further because people are not spending what they earn. The contraction of the economy causes more financial shock, causing people to save harder. Ad infinitum.

One of David Cameron’s speeches at the Tory Party conference was for consumers, businesses and the government alike to pay off their debts. Well intentioned I am sure, but really, really dumb for the overall good of our economy.

Consumer spending in the second quarter of 2011 amounted to £230bn, easily the biggest component of gross domestic product, which stood at £374bn. Now imagine that consumers heeded the prime minister’s advice and paid off just their credit card bills. If they did it all in one quarter, the result would be a 25% drop in consumption and a 15% contraction in the economy. Repayment of credit card bills over a year would mean consumer spending would fall by 6% a quarter and GDP by 4% a quarter. Clearing the credit card debts over the rest of this parliament would reduce consumer spending by 1.75% a quarter and GDP by 1% a quarter.

Nick Pearce, the director of the IPPR who did the above number-crunching, said:

Estimates of trend growth in the UK are around 2.25% a year (ie no more than 0.6% a quarter), so even paying off just credit card debt over the life of this parliament would guarantee that the economy shrank quite significantly between now and 2015 (and that’s before taking into account the government’s cuts in its spending and the knock-on effects on investment, employment, etc).

Sounds bad, right?

Disastrously, consumers are doing just that. Personal borrowing is seeing a record fall as consumers pay off millions of pounds of debt on credit cards, and attempt to increase their savings. Neither of these actions actually result in money entering the wider economy, meaning there is no growth.

Regardless of sector, there will be contractions. This takes us right back to the beginning of this prediction, and pops us firmly in the thrift paradox. I may have been a little out with my timing, but I fear the actual prediction will be spot on. Half a point for me?

Score: 2.7/4

5. The UK Will Enter It’s Own Great Depression

I predicted that the mass cull of public sector workers would be felt immediately, and an associated drop in benefits and economic growth would create a somewhat Perfect Storm.

As yet, I am glad to say that I was wrong on this one. While there are signs the UK will re-enter a recession, I’m pleased to say our own Great Depression is looking unlikely on the immediate front unless the wider issues in Europe go totally wrong.

Score: 2.7/5

6. Reduced Public Sector Workforce Creates Debt Spiral

This one was deliberately Armageddon in nature but held a degree of validity should everything else have happened exactly as predicted. My idea was the public sector cuts severely, resulting in say an additional 1 million people unemployed. The private sector would not be able to come anywhere close to taking up such a slack, and the vast majority would end up on benefits.

Personal finance would take a tumble as the majority of the newly unemployed defaulted on credit cards, loans, mortgages, store cards, car financing and more. Next to no money would be spent on anything other than bear essentials such as cheap food and accommodation. The private sector would contract as a result, causing yet more unemployment. Eventually, as the scenario went, everyone would be unemployed, the government would be bankrupt, and we’d find ourselves back in the 1750′s.

Thankfully again, this one has yet to happen.

Score: 2.7/6

7. Increased Taxation Will Reduce Desire to Spend or Earn

My prediction here was based on taxes going up for normal folk.

Indeed we saw just that with VAT rising from 17.5% to 20%, reducing the desire to spend.

Income tax is and always has been a minefield of contradictions, but in short despite the tax-free allowance going up, the basic rate cap came down. A new 50% tax bracket was introduced for really high earners. National Insurance contributions rose 0.5% as well, making it more expensive to earn money, and spend what was left after it’d be taxed.

A definite win for me here, in a philosophical sense at least.

Score: 3.7/7.

8. The Welfare State Will Be Severely Curtailed or Abolished

Another armageddon-style prediction, but based on a modicum of fact. 1/5th of our GDP (possibly more now) was spent on the welfare system in 2009.

It is too early to tell what the true result of Welfare Reform will be, but suffice to say it will not be an increase in cost for the government. The new “Universal Credit” that is proposed sees families, on average, £322 a year worse off (so far).

I award myself three-quarters of a point for this one, as the writing is on the wall for severe curtailment, albeit not abolishment as yet or within the identified timeframe.

Score: 4.45/8

9. High Inflation

I predicted that whoever won the general election, would enjoy creating an environment that encouraged and stoked high inflation. Inflation helps reduce the real value of debt, and with the amount of debt around the neck of government, the higher the inflation, the better.

As we can see from the graph, the CPI increased significantly from a hair over 1%, to almost 5%. The RPI was even worse hitting almost 6% recently.

While this is not as dire as I had imagined (10%+ wasn’t too far fetched for my brain to foresee), it is still pretty wild and given the target is 2%, counts as high in my mind.

Score: 5.45/9

10. House Prices Will Fall Considerably

I had hoped for a giant market correction in the order of about 50%. A touch morbid any homeowners amongst you will say, I’m sure.

My graph at the time showed (assuming a level increase in cost without too much scientific backing), how overpriced housing was at the time:

What actually happened was this:

I predicted a bigger drop than actually happened, but house prices still dropped by over 10% during 2009/2010, before rising sharply and then dropping back to 0% for 2011. The real-world effect of this was house prices stayed fairly stagnant or dropped by a few percentage points over 2007 asking values.

Again I think half a point is in order in terms of scoring because there was a significant drop in asking prices during the defined period, but not the massive correction I had hoped for.

Score: 5.95/10

 Overall, 59.5% of my predictions held true in some meaningful sense.

This isn’t much fun for me as let’s be honest, it would have been fantastic for the country if all my predictions fell flat on their faces, and everything was rosy.

Sadly that is not the case, and it is far from over yet. To get almost 60% of my predictions right (some of which were pretty wild), is a token win for me, but a terrible blow for our overall economic well-being.

Have a prediction of your own or comments on my analysis? I’d love to see you in the comments.

There are a number of different places in which you might choose to place your investments, although some may be more beneficial than other for those who are in debt. One of the most straightforward options, of course, if to simply place your money into a savings account. If you don’t mind placing your money within a bank or building society, but would rather it was somewhere that meant you were unable to spend it, then you may want to think about putting your money in an ISA, or other type of savings bond which does not allow instant access

If you want to earn more than basic interest rates on your investment, then you might want to think about putting your money in stocks, shares or commodities. However, for money of these options, it can be worth having some previous experience in investing, as well as the time to monitor any trading opportunities. Alternatively, investing in a commodity such as gold can be done online via sites like Bullion Vault, and is ideal for those who may not have and prior knowledge of the investment process. This is also a good option for those who may need to withdraw their investment at any point. Whilst funds cannot be access used a debit card, for example, they can be withdrawn at at time.

Lastly, you may also want to consider investing in property, or other such assets. For example, if you own your own business, then you may want to make investments which will somehow enhance the services which you offer. However, you will want to make sure that such investments do not also involve accruing further debts and expenses.

• A Fundamental Question
• Dig Yourself Out of Debt: Cleaning Up
• The Importance of Redundancy Planning
• Dig Yourself Out of Debt: Psychology 101
• Investing Made Simple