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10 ways to borrow money

An empty purseIn just over a year, the cheapest lenders have cut prices almost 30 times on their most popular loans. Yet, with many different ways to borrow, you need to consider which type of credit is right for you.

1. Personal loans

Personal loans are available for just 6 and 7 per cent APR, although think twice if a lender offers you any loan at a higher rate than they advertised.

When choosing, ensure the rate is fixed and there is no payment holiday at the beginning. Payment holidays may sound jolly but they're traps that cost hundreds of pounds in interest.

2. Credit unions

These institutions are run by their own members so they offer good terms and friendly service.

Credit union membership is restricted by where you live or what you do for a living. Some are for firemen and others for people who live or work in Leeds, for example.

The Association of British Credit Unions will help you find one local to you.

Normally, you must save a modest amount for at least a few months before you're allowed to borrow.

3. 0 per cent on new purchase credit cards

These credit cards allow you to make big purchases and spread the cost over up to 18 months, completely free.

You must make at least the minimum monthly repayment and clear the debt before the 0 per cent deal is over or you'll face massive penalties and interest in future.

4. 0 per cent on balance transfer credit cards

Reduce your borrowing costs by transferring debt from one or more credit cards to another that has a 0 per cent deal lasting up to two years.

You will have to pay a fee for this balance transfer, typically 2.5 per cent to 3 per cent.

Remember to close your old credit card accounts to stop the temptation of spending on them again.

5. Low interest rate credit cards

Some credit cards have a fixed, low rate of interest of 6 or 7 per cent for those with excellent credit records.

These offer flexible repayments but don't let that be an excuse to pay debt off more slowly or to borrow more.

6. Payday loans

These short term loans normally come with a high interest rate and charges if you don't pay them back within 30 days.

If you have serious money problems perhaps due to existing debts, or no other credit available to you, the last resort is not payday loans.

Seek money advice from free debt organisations such as the Citizens AdviceNational Debtline or the Consumer Credit Counselling Service.

7. Family and friends

I have interviewed many debtors and debt professionals and I've learned you shouldn't lend money to those you know with debt problems, except in serious emergencies.

However, sensible debt advisers consider it an emergency if the relative is desperate enough to try payday loans.

8. Social lenders

These days you can both borrow from and lend to ordinary people with no banks involved.

By law, most new bank personal loans are now supposed to allow overpayments at no cost, but it's a faff to do so and lenders are proving reluctant to explain how.

So, if you want to be able to reduce the price of your debt by paying bits of it early, social lenders, such as Zopa, RateSetter or Yes-Secure, offer flexible terms.

Although they're relatively new, these three have done a convincing job of demonstrating their reliability.

9. Remortgaging

Remortgaging when your existing home loan deal expires usually saves you money.

You could also remortgage to borrow more for an extension or setting up a business, for example, and it can be an affordable way to borrow.

However, if you are no fan of maths, you'd be surprised how expensive it is in the long run unless you quickly make overpayments.

Read a guide to remortgaging.

10. Secured loans

These loans are normally secured against your home so, if you're unable to meet the repayments, the lender could take a chunk of it when you sell or even repossess it in some circumstances.

A company once asked me to calculate for them, based on several individual scenarios, whether it would be better for specific borrowers to get a secured loan or to remortgage.

In all my tests, remortgaging came out better, when considering both terms and price.

But whatever route you are considering, think very carefully before borrowing more.

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Neil Faulkner

Neil Faulkner

Neil Faulkner waded his way through a mountain of claims as a paralegal before moving on to be an insurance consultant and claims manager. He is a long-term investor, and one-time property owner and landlord. He writes about property, investing, insurance, consumer issues, and helping people get out of debt misery.

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