In an ideal world, our bank accounts would be overflowing and whenever we needed some extra cash, it would be instantly forthcoming. Unfortunately, real life is not like that and unless you are a Premier League footballer earning a ridiculous amount of money every week, like the majority of people, you probably need a little bit extra from time to time. When you do find yourself in need of some extra cash, there are lots of options, but unless you are careful, some of them might turn out to be ruinously expensive.
Is Borrowing Money a Good Idea?
Saving up for things is always better than deliberately getting into debt, but not all expenses can be planned for. For example, if your car has unexpectedly broken down and you need a vehicle to travel to and from work, looking at a personal loan to finance a new car might be the best solution. But before you consider one of a myriad of personal loans in the current market, you need to think about which method of borrowing money is right for you.
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What are the Options for Borrowing Extra Cash?
For a short-term purchase, credit card loans are often ideal. As long as you pay back the loan by the next repayment date, you will not be charged any interest on the loan. It is also possible to secure an interest free loan on a credit card if you take advantage of an introductory ‘interest free’ offer on a new credit card. Many credit card companies give their customers lengthy interest free periods on balance transfers or purchases in order to attract new business. So if you think you won’t be able to pay back the balance quickly, shop around for an interest free deal.
Utilising an overdraft for some short-term borrowing can be a costly experience. Many banks and building societies charge exorbitant fees if you slide into the red, even if it is only for a few days, so if you need some extra cash, think very carefully before you use an overdraft unless you have an interest free buffer zone on your bank account.
Unsecured personal loans
Unsecured loans are ideal for borrowing a few thousand pounds. You borrow a set amount for any purpose you wish and agree to a repayment schedule with your lender. Interest is charged on the amount borrowed and is normally fixed, so irrespective of what the Bank of England base rate is, you have the peace of mind of knowing exactly what your repayments are going to be throughout the life of the loan. However, if you wish to repay the loan earlier, you may be subject to a redemption penalty, so always read the small print when taking out an unsecured personal loan.
Secured personal loans
These loans are not as straightforward as an unsecured loan and because the money you borrow is typically secured on your home or some other large asset, if you subsequently fail to repay the loan, the lender can seize your assets to recover their money. However, if you want to make some extensive home improvements, a loan secured on your property might be the cheapest way of borrowing the money.
Short-term loans do not have the best reputation in the world, but for some people, they are the only solution when extra cash is needed. A payday loan is designed for people who need instant cash and have a bad credit rating. The cost of borrowing the money is very high, but they are extremely convenient, and if you only need the cash for a few days, a payday loan is actually cheaper than sinking into an unauthorised overdraft.
How Do I Know Which Loan is Right for Me?
Before you sign up for a loan, decide how much you need to borrow and how long you need the money for. If you only need to borrow the money for a short period, consider putting the purchase on a credit card, but if you need a larger sum of money and you want to spread the purchase over a longer period of time, look at an unsecured personal loan online to see what the best deals currently are.
William works as a financial advisor and therefore knows the benefits of shopping around for personal loans online. Follow him on Google+ for more tips.