While most people want to avoid getting into debt if they can, there are a few situations where borrowing money is appropriate or necessary.
Most of the time, it is impossible to make a large purchase like a house or even a new car without borrowing some money. You’ll need to open a credit agreement if you want to get the best new smartphone contract deal, and if you have an emergency expense at home that you don’t have the funds to cover right now, borrowing money could be inevitable.
However, borrowing money should never be a decision that is taken lightly whether you need £100 or £100,000. Weighing up your options and considering the smart ways to borrow money is important to ensure that you are able to financially manage in the future.
1. Zero Interest Credit Cards
Credit cards with zero percent interest rates and fee-free balance transfers have been making a comeback, and these are some of the best options to go for if you need to borrow money quickly and want to save as much as possible when it comes to repaying it.
Generally, these cards offer grace periods from six to eighteen months where you do not have to pay any interest on any repayments that you make. Many people who utilize these cards will take full advantage of them during the interest-free period before transferring the balance to a different interest-free card and repeating the process.
If you want to borrow money to keep on hand for an emergency, they might not offer the best solution since the interest-free time period is limited. In this case, a low-interest rate credit card might be an ideal option.
2. Short-Term Loans
There is no sense in paying back a loan for a lengthy amount of time if you only need to borrow a small amount of money.
Let’s say you’ve had an appliance suddenly break down at home and you need to replace it straight away, but your payday isn’t for another few weeks. In this case, a payday loan broker like New Horizons may be able to help you find an ideal way to get the funds that you need.
Payday loans have undergone significant improvements and stringent regulations in recent years making them a trustworthy and reputable option compared to in the past. New Horizons works with a panel of UK lenders, allowing you to use their site to quickly search for the loans that you are likely to be eligible for, so you can find the one that offers the best interest rates and terms.
3. Peer to Peer Lending
Peer to peer lending often offers an investment opportunity and can be an ideal way to find loans at lower rates.
There are various peer-to-peer lending sites that you can search to find a suitable lender. The amount of interest that you will pay will usually depend on your credit rating, and like many borrowing options, if you have a poor credit score then you may not be able to take advantage of peer-to-peer lending until it is improved.
However, if you have an average or above-average credit rating and only need a short-term, small loan, peer-to-peer lending can be one of the cheaper alternatives out there.
4. Credit Unions
Credit Unions tend to offer more flexible lending options and lower interest rates compared to the banks. For example, the average credit union interest rate comes in at around 1.5-2 percentage points lower than your average bank.
Credit unions tend to offer both secured and unsecured loans and the options you will be eligible for will depend on a number of factors, including your credit score, membership status, income, and the amount of funding that you need.
5. Be Smart About Borrowing Money
While there are some options that are, on the whole, smarter ways to borrow money in certain circumstances, every borrowing option has the potential to go awry if you are not smart about it.
Whether you are looking for a short-term loan or a larger loan to cover a big purchase, it is important to take the following smart steps to ensure that this is the right borrowing option for you.
6. Work Out Your Budget
To avoid any surprises, never agree on a loan until you are sure about how much you are going to be expected to repay every month, and for how long.
If you are taking out a credit card, similarly you should be aware of the minimum required payment since you will be required to make this monthly if there is a balance on the card.
Consider your monthly income and expenses to put together a budget that clearly defines how much you can afford to repay a debt each month and factor this in when borrowing.
7. Consider the Future
While nobody knows exactly what the future is going to hold, it is important to consider where you expect to be in the future when taking out a loan or other line of credit.
For example, it can be seriously risky to borrow a large loan on a five-year repayment plan if you only have your job on a temporary basis for a year or you are working at a company that is at risk of closure.
While you could end up finding work before the worst happens, that is never guaranteed. In these cases, you may want to consider taking out payment protection insurance that would cover your payments in the event of you losing your job.
8. Think About Alternatives
Today, there are so many easy ways to borrow money that many people turn straight to lenders without considering if there are any alternative options.
Borrowing from friends and family, for example, can be a smart alternative route to take if you have a good relationship with them and are committed to making sure that you uphold your promise to pay them back. Not paying back your debts can ruin family relationships, so it is important to borrow from somebody with whom you can communicate well with and will work with you if you face any difficulties.
Selling existing items is another way of generating the cash that you need without borrowing. Whether it is a wardrobe clear-out or even downgrading your car, if you want to avoid borrowing, it is worth considering all the other options available when it comes to raising money.
9. Only Borrow What You Need
Finally, don’t be tempted to borrow money that you don’t actually need. It can be tempting to go for the higher offer that lenders often tell you that you are eligible for when you apply for a smaller amount, but this will only end up making things harder to deal with in the future.
Remember that the less you borrow, the lower your interest rates and monthly repayment amounts are going to be, so keep your borrowing to only what is absolutely necessary for you and resist any offers of extra.
When it comes to borrowing money, there is certainly no one-size-fits-all solution that will work for everybody. How you borrow and the type of financial product you need will depend on a number of individual factors. But whatever your situation, there are always smarter ways to go about borrowing money.
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I am Adeyemi Adetilewa, a media consultant, entrepreneur, husband, and father. Founder and Editor-In-Chief of Ideas Plus Business Magazine, online business resources for entrepreneurs. I help brands share unique and impactful stories through the use of public relations, advertising, and online marketing. My work has been featured on the Huffington Post, Thrive Global, Addicted2Success, Hackernoon, The Good Men Project, and other publications.