Understand your borrowing options
Loans are a very practical way to borrow money – but they may not be the cheapest option for every circumstance. They can work out to be quite an expensive thanks to their relatively high interest rates in comparison to other borrowing options. In many cases, particularly if you are looking to borrow a very small or very large amount of money, there are other products that can offer cheaper alternatives.
Borrowing a small amount? Use a credit card.
The best alternative to borrowing a small amount to make a specific purchase is to use a credit card. There are plenty of interest-free credit cards available that give an interest-free period for new purchases – usually between 3-12 months. If you know that you will be able to repay the money within the interest free period, opt for the credit card rather than the loan, as even loans for small amounts will come with interest charges – in fact, often with a loan the less money you are looking to borrow, the higher the interest rate will be. With an interest free credit card you will avoid interest charges altogether.
Considering a debt consolidation loan? Look at credit card balance transfer.
If you have multiple credit card debts that you are looking to consolidate with a loan, there are other, cheaper options. A credit card that offers an interest-free period on balance transfers is a good way to consolidate and repay your debts while paying as little interest as possible. If you are able to repay the debt fully within the interest free period all you will have to pay is a handling fee to get your existing balances transferred. If you reach the end of the interest free period and you have not repaid the debts in full, you can transfer the remaining balance onto a new card and take advantage of a new interest free period.
Borrowing a large amount? Consider a remortgage.
If you are looking to borrow a large amount of money as a secured loan and you have equity in your home, you might want to consider a remortgage instead. A remortgage is the cheapest way to borrow money against your home, as the interest rates on a mortgage are lower than on a secured loan. Therefore, if you are coming to the end of your introductory period on your current mortgage, consider borrowing a larger amount when you remortgage. That way all your loans will be rolled into one monthly repayment and you will be borrowing money at the lowest possible interest rate.
What to keep in mind
Whatever way you choose to borrow money, the cheapest option is always going to be to borrow as little money as possible over the shortest time possible. Always make sure you are repaying as much as you can afford each month on your debts in order to get them repaid as quickly as possible, as the longer you spend repaying debts the more interest you will pay overall – which means the more expensive they become. If you aren’t sure which borrowing option is best for you, be sure to speak to an independent expert for advice that is tailored to your budget and requirements.
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