Do your research first
Very few of us can avoid borrowing money at some point or another. Unless you are lucky enough to be born into a rich family, you are likely to have to borrow money from quite a young age to study at university, to buy a car or to finance a holiday. As for buying a home, who can afford to do that without borrowing money today? Fortunately, although borrowing is unavoidable, it is actually often a very positive thing to do as long as you do it wisely.
If you need to borrow a sum of money, however much it is, it pays to do your research first. By choosing the best borrowing option for you, you can save yourself a considerable amount of money. Choosing the best option depends on a number of variables: how much you need to borrow, how quickly you can repay it and your credit score.
Your credit score is particularly important if you are planning on borrowing money. Contrary to popular belief, you do not have one fixed credit score. Lenders will use slightly different criteria to score potential borrowers, so your credit score will vary depending on the lender.
The score you are given will affect the amount you are allowed to borrow and the interest rate you are charged. In fact, if you are applying for a mortgage, a low credit score will mean that you are rejected altogether.
With personal or secured loans, low credit scores attract higher rates of interest. Low credit scores are given to potential borrowers who the borrower thinks will be unreliable. For example, they may have missed one or more monthly repayments in the past on a credit card or another form of loan. Ironically, perhaps, you can also attract a low credit score from a lender if you have never borrowed money. You actually need to have borrowed money and shown that you were able to repay the loan on time in order to be given a good credit score.
If you only need to borrow a small amount, the cheapest way to do this is to borrow from your bank by arranging an overdraft. Your bank won’t charge you a set-up fee and interest rates are far lower than those of any payday loan company. If your bank won’t give you an overdraft, however, or extend the one you already have, your next best bet is to take out a credit card which offers zero per cent interest for the first six months and put all purchases on that. You do need to be disciplined about paying off the balance, however, before the interest-free period is over if you want to avoid higher interest rates.
If you want to borrow money in order to buy a car, it is considering worth hire purchase or personal contract purchase (PCP). Check the interest rates being offered to you, though. If they are higher than a loan from a bank or building society, borrow your money from them instead and pay for the car upfront.
Homeowner loans are a great solution if you need to borrow a larger sum, perhaps to consolidate debts, to buy a new kitchen or for other home improvements. You could increase your mortgage or even remortgage your home, but you will need to have sufficient equity.
Secured loans are another viable option if you wish to borrow a large amount of money or if you have a less than perfect credit score. Your property is offered as security to the lender, who can take action to repossess the property if you fail to repay the loan, just as with a mortgage. If you are confident that you can meet the repayments, homeowner loans can be very useful.
Again, it pays to shop around. Most lenders will charge an arrangement fee, and you may have to pay to have your property valued. As always, compare the different interest rates that lenders are offering. Be a wise borrower and you will find that you can save yourself a considerable sum of money.
Think carefully before securing debts against your home your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
