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Sometimes you just a little bit of extra cash to see you through to the end of the month. But what are the best options for short term borrowing?
We’ve all been there. Your washing machine packs up and floods the kitchen. Four birthdays arrive in the space of a few weeks. Your car breaks down at the worst possible moment.
Some months, no matter how carefully you plan, you’re going to end up spending more money than you’d like. If you’ve got savings, then you can probably dip into those to make up the difference, but if you don’t, what are your options?
Short term borrowing: Your options
Option #1: Friends and family
If you’re looking to borrow a little money and pay it back quickly, friends and family are often the best port of call. And they’re usually willing to help in many ways. Not only can they lend you money, but they’re generally more understanding about terms of repayment. As an added bonus, there’s no credit checking or interest involved.
Some people avoid asking their friends and family because it puts them in an awkward situation. Always bear in mind that borrowing from friends and family may mean that they have to dip into their own emergency fund, so don’t be offended or upset if they say no.
Option #2: Overdraft
If you have an agreed overdraft on your current account, then you’re in luck.
Overdrafts – provided they’re a short-term solution – can be a good option for short-term borrowing. Just make sure you don’t exceed your agreed limit and budget next month to pay back the deficit. If not, you could end up living out of your overdraft, which is a problem in and of itself.
Option #3: Credit cards
Although they’re great for short-term borrowing, the interest rates on most credit cards mean that – as a rule – if you start paying off the debt slowly, over time, they get very expensive indeed. The best way to use a credit card is to pay the balance you owe in full every month. This helps build your credit score and also allows you take full advantage of the credit cards many advantages.
Option #4: Peer to Peer (P2P) Lending
P2P lending works on a similar concept to borrowing from a friend, except you have to pay interest and there are strict repayment terms. You head to a P2P lending site and find a stranger (saver) who is willing to lend you (borrower) the money you need for the time you need it. These people are often more willing to lend people with poor credit money than a high street bank would be, but the same rule of thumb (‘better rates for better credit scores’) still pretty much applies.
Option #5: Unsecured or guarantor loans
Unsecured or guarantor loans allow you to borrow money over a longer period with a fixed repayment amount each month, which can be repaid over a period of time. These loans can also be paid back earlier, in full or in part, providing a more cost effective alternative to a credit card or an overdraft. Here at Bamboo, we offer loans for anywhere between £1,000 and £8,000. Why not see how much you could borrow from Bamboo? Representative APR 49.7%. A guarantor may be required.
And what about payday loans?
Across the UK, millions of people turn to payday loans to help them get from payday to payday. And it’s easy to see why.
They can often feel like the quickest, easiest and simplest short term borrowing solution. You can borrow a relatively small amount of money until you’re back on your feet, then pay it back in one go. Even better, they’re likely to approve your application and you can have the money in your account almost instantly.
But that almost never happens.
Payday loans can seem like a short-term solution when you need money in a hurry but, they often only end up making your situation worse in the long run. Short term borrowing with an incredibly high APR makes it far more likely that you’ll be short of money again the next month, once you’ve repaid the amount you borrowed and its interest. Pretty soon, you’re caught in a cycle of dependency on payday loans. This can be very expensive.
But don’t just take it from us. Here’s what Martin Lewis, creator of MoneySavingExpert.com has to say about payday loans:
A payday loan feels easy, but even now the amount of interest you pay has been capped, these loans are still an expensive nightmare. Take one out and you risk scarring your finances, and the possibility of paying back double what you borrowed. We don’t like payday loans. Most people who get them shouldn’t.
- Author Jack Barclay
- Posted 10 September 2018