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5 of the best ways to borrow

5 of the best ways to borrow

Category: Loans

Updated: 15/05/2014
First Published: 15/05/2014

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This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

No matter how hard you try to budget and save up all those hard-earned pounds, sometimes turning to credit is the only option. In many cases it can be a highly cost-effective choice – it can let you spread the cost of purchases while for truly large splurges it'll often be the only option, and other times it can simply be a way to effectively manage your finances.

However, even though it can be beneficial, you need to borrow wisely to ensure your helpful cash injection doesn't become a financial nightmare. With that in mind, here are five of the best ways to borrow to help keep costs – and debt – under control.

  1. Overdraft. Overdrafts tend to be the go-to choice for small amounts of borrowing, with banking customers often needing to dip into the overdraft buffer once in a while. In many cases it'll be part and parcel of your bank account, but keep an eye out for fees and excess costs – if you think you'll need to use an overdraft facility make sure you apply for it to avoid costly unauthorised overdraft fees, and always look for an account that charges competitive rates of interest. Some banks even offer 0% overdraft facilities for a set period of time, such as Nationwide's FlexDirect which offers a fee and interest-free overdraft for the first 12 months, keeping costs to a minimum.
  1. Credit card. Credit cards can be incredibly beneficial when managed effectively, but the key word here is "manage" – you can't just blindly spend unless you want the bill to rack up and nor can you forget about the likes of minimum payments, and you'll always want to find the most appropriate card for your needs. Reward cards can be a great option, particularly if you're using them as a primary method of payment, with the likes of cashback and points soon adding up – but just remember to pay off the balance in full each month to avoid interest negating any benefits. Or, if you want to fund a slightly bigger purchase, make sure to look for cards that come with 0% purchase deals so you can spread the cost without accruing additional interest.
  1. BT credit card. Alternatively, if you've already maxed out a credit card or two and are serious about repaying things, make sure to consider balance transfer cards. These will come with generous 0% interest periods, some as long as 32 months, giving you plenty of time to pay off the balance in full. Just make sure you're able to pay it off by the time the introductory period ends, keep an eye out for excessive balance transfer fees and make sure to only use this card as a means of clearing debt, as the purchase rate could well be costly.
  1. Personal loan. If you've got your eye on a bigger purchase, say £3,000+, a personal loan could well be the solution. Luckily personal loan rates are currently at all-time lows and, depending on the amount and term of the loan you're looking for, you could be charged from as little as 4.3% APR. Rates will always be representative however and depend entirely on your individual circumstances, with it usually only being borrowers with a good credit rating that will get the headline deals.
  1. Secured loan. If you're after a particularly large sum of money, a secured (or homeowner) loan will usually be the only option. These loans tend to be used for the likes of a new car, expensive home improvements or to consolidate existing debts, and as the name suggests they use your home as security. But, while that means you'll usually be able to borrow more, the trade-off is that it's a riskier form of borrowing as your home could be repossessed if you fail to keep up with repayments, so make sure you can comfortably afford it.

These are the most common options available to those looking to borrow, and as long as you manage your credit commitments effectively you'll be able to stay on track. The key is to stay sensible and realistic, so make sure to choose the most cost-effective form of borrowing for your needs (check out our best buy tables to help make your decision) and you'll be able to put credit to good use

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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