It is normal to borrow money. We have all done it at some time or another, and almost all of us are repaying finance right now. It might be a loan, a mortgage, a new car or many other things. It is nothing to be ashamed of. Many need to borrow in the short-term, when something unexpected happens in their life. With that in mind, Moolr have taken a look at 4 ways to borrow a small amount of money.
Each of the 4 ways has different pros and cons that can affect your credit rating in different ways as well as costing a varied amount of money. The first obvious avenue is to take out a personal loan. The pros are many: you get money into your account quickly to deal with whatever life has thrown at you. The repayments will be made over a short period of time, so the debt will not be hanging over you for years. And with regular repayments, you get to improve you credit rating, should that be an issue.
Onto the cons: the amount you can borrow will be limited. They are not suitable for large-scale borrowing. Also, as the repayment period is relatively short, the interest rates will be higher as a result.
You can borrow between £500 and £35000 using a personal loan, so it is still worth considering even if you only want to borrow a small amount.
However, you may have to pay a higher rate for a smaller personal loan because the best rates are for larger loans, normally between £7500 and £15000. Some lenders do not lend less than £1000 too, so you may have less choice.
If you have a poor credit record then you may be better off applying for a guarantor loan instead of a standard personal loan, but you will need to help of a friend or family member.
A credit card is one of the most common products in the UK – most of us will have at least one. The pros of using one for funds are that it can be a cheap option if you get a 0% purchase card offer, you get instant access to funds, and again regular repayments will help improve your credit rating. However, whilst it is quick to apply for, the card may take a while to arrive. If your credit rating is not good, you may struggle to get the best offers out there. Withdrawing cash from a machine can be costly, and if you do not repay the entire balance before the welcome offer expires, you will be hit with high interest rates on the outstanding balance.
Another quick and convenient option.
With an approved overdraft you can borrow from your bank account by withdrawing cash or using your debit card. Furthermore, some banks offer 0% overdrafts for small amounts, which can make this one of the cheapest ways to borrow. Standard overdraft rates are around 15-20% APR but other fees may apply.
Again though, whilst an overdraft is convenient, it may often come with fees for those that use the facility. It will also not be an option for those with a poor credit score. There will also be high fees if you go over your limit at any time.
This is often the cheapest option. Friends or family are hardly likely to charge you fees for borrowing money, or impose financial sanctions if you are late paying back the money. Also, such an agreement will have no effect on your credit score, and there are no limits or rules to the terms of the loan. That is for you to agree.
However – mixing business and pleasure is always risky. Failing to make repayments could affect your relationship, and legally there is no comeback if something goes wrong on either side. No one is protected.
Asking to borrow money from friends or family could be cheap and flexible, but it isn’t always the best option. How much does it cost though? Well, this all depends on what you agree with the person lending you the money, but borrowing from friends or family could be your cheapest option.
So, which of these is better for you? A personal loan, credit card, overdraft or borrowing from friends? Let us know, and if you are in need of any personal loan options get in touch with us today.