Borrowing money

If you’re looking to borrow money and want a cheap, easy option, you might think of turning to family or friends.

Of course, loved ones won’t always place tight restrictions on things like repayments and interest.

But it’s still important to treat it seriously.

So before any money changes hands: 

• agree on how much you need
• how you plan to pay it back
• put everything in writing so there aren’t any misunderstandings later on

Even if you’re dealing with close friends or family, you should treat it like a formal loan.

And make sure you only borrow what you can repay.

The last thing you want is to cause financial stress or put your relationships with the people you love under strain.

If turning to family and friends isn’t an option, that are alternatives you can look at.

Personal loans

A personal loan is a lump sum you can borrow from a bank, building society or another lender.

They’re sometimes called unsecured loans because you don’t need to use an asset - such as your car or home - as security.

You repay the loan - plus interest - over a set period, usually in monthly instalments.

The interest is worked out as a percentage of the amount you borrow.

The longer you take to pay back the loan, the more interest you’ll be charged.

Personal loans are generally set up to be paid back over one to five years.

Before you agree to anything, it’s important to think about any extra costs that might come with it.

For example, you might face early repayment charges if you’re able to pay the loan off early, and you should also think about interest rates and other fees, as these will vary depending on your lender and your credit score.

Credit cards

A credit card allows you to spend up to a set amount of money agreed with the lender. 

 This is called your credit limit and is usually based on your credit history and income.

In general, the better your credit history and the higher your income, the more a lender will allow you to borrow - though they also consider any existing debts and your overall financial situation.

Your lender will send you a statement each month, setting out: 

• how much you owe (your total balance)
• the minimum payment required - the lowest amount you can pay that month
• when you need to make your monthly payment

Overdrafts

An overdraft allows you to spend more than your current account balance, up to an agreed limit.

It can be useful if you have short-term gaps in cash or you’re facing unexpected costs.

Interest is usually charged only on the days you use your overdraft.

If you want to borrow money, there are a few things to remember to make sure you’re not at risk of an unaffordable debt.

Shop around

Compare different options before making any decisions, perhaps by using a comparison site.

Even just a little extra research can save you lots of money.

Check total repayment costs

Look beyond interest rates and look at all the other fees that could come with borrowing money.

Understand the difference between secured and unsecured loans

This is crucial, because a secured loan puts your home at risk if you fall behind.

Plan your budget before borrowing

Don’t borrow any more than you can realistically repay.

So it’s worth taking a look at how much money you’ve got coming in and going out, so you can work out what you can afford.

Don’t borrow impulsively

Borrowing money should be a carefully considered decision, so think carefully before taking any action.

Consolidate your debts

A debt consolidation loan lets you combine all your debts into a single loan, so you only have to make one monthly repayment.

But there are risks to doing this, such as your debt spiralling or having to pay more in interest than you might have done otherwise.

If you’re struggling with debt, it’s worth speaking to a specialist debt adviser who can help you find safer ways to manage your money.