The best ways to borrow
Filed under: Loans
So if you need to borrow money, what is the best option? We run through the most suitable forms of credit for some familiar borrowing scenarios.
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Holiday time has rolled around and you haven't saved enough to jet off without dipping into the red, sound familiar? A 0% purchase credit card is generally the best option as it won't cost extra in interest providing it is used properly. This means clearing the balance in full by the end of the 0% period to ensure you don't get stung by sky high rates when the promotional rate is up.
It is important to look beyond the large selection of 0% purchase credit cards on the market to find one that doesn't levy hefty charges for foreign usage. These foreign exchange fees of up to 3% can add a chunk on top of every transaction you make while on holiday.
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Currently, top cards that don't charge foreign usage fees include the Nationwide credit card, which offers 0% on purchases for six months, and the Post Office Platinum card which offers 0% on purchases for three months.
Essential house projects like a new kitchen, bathroom or loft extension can't wait any longer and your savings don't stretch to these big ticket spends. A personal loan is likely to be the best option here. Depending on the sum you need to borrow, it is also worth considering an advance on your mortgage rather than an unsecured loan.
While this option is often berated for fear of hiking the risk on your property, it will make loan repayments more manageable and actually makes sense when funding improvement projects that are likely to increase the value of your home.
Remortgaging is undoubtedly harder than it used to be but it should be possible providing you have some equity in your home. Just beware of extending your loan-to-value too much - beyond 75% you'll get hit with a much higher rate.
Rising household costs are taking their toll on your income and an unexpected expense like car repairs or broken household appliance has completely thrown your finances off track this month. Dipping in your authorised overdraft is usually the best option in this instance, providing it doesn't become a regular habit.
Overdrafts are meant to provide a financial buffer to help with cashflow or fund short-term expenses, but find out the cost before you dip in. Authorised overdraft rates can be as high as 19% and levy daily fees, so check what your current account charges to avoid a nasty surprise on your statement.
Try not to become too familiar with your overdraft as relying on it often will leave you short each month. If you're are constantly struggling at the end of the month it is time to reassess your spending and look for areas to cut back.
A growing family or constant repairs have triggered the decision to trade in your old car for a new model but savings don't stretch to the vehicle you have in mind. When borrowing between £2,500 and £10,000 an unsecured personal loan is usually the best option. It will enable you to spread repayments over a period of years and current good rates mean you'll pay considerably less interest than on a credit card.
An unsecured personal loan offers security because repayments are fixed and won't fluctuate, but bear in mind that an early repayment charge is normally levied if you want to clear the balance before the term is up.
As with every product, it is important to shop around to find a competitive deal. The current market leading personal loan rate is 6% from the Derbyshire Building Society, which puts repayments on a £10,000 loan over five years at £192.59 a month.