Borrowing money can sometimes be seen as taboo – something that’s only done by the fiscally irresponsible.
But that’s a very old-fashioned view. In reality, credit and loans can be an important financial tool, as long as you use them sensibly. And what could be more sensible than making sure that you borrow your money for a cheaper price?
Overdrafts used to be a reasonably cost-effective way of borrowing, but since the overhaul of fees and interest rates, they have become significantly more expensive. If you want to spread the cost of a purchase by borrowing some money, consider one of these options instead.
0% interest purchase cards
Getting a credit card is probably the most obvious way to borrow money. It can also be very cost effective, as long as you choose the right type of card. While some credit cards offer rewards, or help people build up their credit score, the best type of card for borrowing cheaply is one that offers 0% interest on purchases.
These will allow you to spend money without making any interest payments during the promotional period – often 18 months or longer. This is a fantastic option for buying items such as white goods and furniture, as it allows you to spread a relatively expensive cost out over a year or two. Even if you have the money ready to go in savings, using a 0% card instead may be sensible. That’s because your money will continue to earn interest while it sits in the savings account, leaving you up on the deal.
Buy now pay later
This is a really easy way to borrow money, typically offered at the checkout when you go to purchase items online. There’s no interest to pay, so the debt itself doesn’t cost you anything. However, they typically only offer a shorter period of three months to make the repayment.
It’s best used to help cover the cost of items that you need, not things you want. That’s because ‘buy now pay later’ deals can quickly become unmanageable if you use them too often to buy things that you can’t really afford. The other thing to remember is that missed payments will affect your credit rating – so it’s important you continue making payments every month.
Overall, these offers can be very helpful, as long as you limit yourself to repayments that fit into your budget.
Unsecured personal loans
If you need to borrow a larger sum of money, then you’ll probably need a personal loan. These aren’t free, but with interest rates currently as low as 3% depending on what offer you go for, it’s definitely a viable option. In order to get a loan, you’ll need to have a decent credit score. You’ll also need to show the bank that your income is high enough for you to be able to afford repayments. A typical personal loan may be around £3,000 – £15,000, and it’s sometimes possible to borrow more.
The golden rule is, as always, to only borrow money that you really need, and to have a plan for repayment before you sign on the dotted line.