Managing Money

Borrowing Money

There are many different ways that you can borrow money. Here are some of the main ways of borrowing and the main features of them.

Credit Cards

These are a common way of paying for goods instead of using cash or cheques. You pay for things with and get a monthly bill. With most credit cards you won’t be charged interest if you pay your bill in full by the date on the statement.

But if you don’t pay the full bill, you will be charged interest on what is left. If you only pay the minimum amount each month it may take a very long time to repay the debt. You can also use credit cards to borrow money by taking a cash advance.

Credit cards are an expensive way to borrow and other methods, such as personal loans, may be cheaper. Interest rates vary so make sure you shop around before choosing a credit card.

Store Cards

Many big stores offer finance deals or store cards. In-store finance deals may be useful to help you pay for big purchases over time, but make sure you understand the costs and charges as store cards tend to charge higher rates of interest

Personal Loans

There are two main types of personal loans- secured loans and unsecured loans. Rates for secured loans are usually lower but there could be extra fees. You can apply for a secured loan only if you are a homeowner, using your home as security, which means that if you get into difficulties repaying the loan, the lender could repossess your home and sell it to get their money back.

If you buy something like a new car, the retailer will often offer you a loan. You don’t have to take it- a loan from your usual bank or other lender may be cheaper, so it’s worth shopping around.

Try not to borrow for longer than necessary. Although borrowing for a longer term means you pay less each month, you could pay more interest overall.

Check the terms carefully if there’s a chance you may want to repay the loan early. For example, you should check how much interest you will be expected to pay with your final payment and any other charges that may be due.

Home Credit

Home credit is a flexible way of borrowing for people who might not have access to loans or other financial products from high street financial institutions. But the interest rates generally charged for home credit are usually extremely expensive and you should consider other alternatives before borrowing from a home credit lender.

Scotcash

Scotcash is a new company for citizens of Glasgow which provides a cost effective alternative for loans where a bank or building society will not help. Loans are given on your current circumstances, not your past credit history. Unemployment is not a barrier to getting a loan; benefits are taken account as income and you can have a choice of making weekly or monthly payments.

If you would like to discuss a loan from Scotcash you can call them on 0141 276 0525 or click here for further information.

Loan Sharks

Loan sharks are unlicensed lenders. They operate illegally and will lend you money when nobody else will, but:

  • The interest rate will be very high and you may find it difficult to keep up the repayments; and
  • You may be forced to get a second loan to pay off the first, and so on and so on until your debts are out of control.

Loan sharks prey on vulnerable people like the unemployed or lone parents. They may force you to hand over Social Security benefit claim books as security against loans.

Know What You Are Taking On

There are times when you need to borrow money, whether it’s a personal loan, buying with a credit or store card or buying on hire purchase. These are all forms of borrowing.

The bottom line is if you borrow money, you will have to repay it in the future with interest added. Can you afford the repayments from your household budget? Ask yourself- do you really need the item you are buying?

Golden Rules:

  • Always read the small print.
  • Always check the APR.
  • Make sure that the repayment period is not longer than the useful life of the item you buy on credit.
  • Make sure that you know the total amount you will have to repay.

You can use the Money Advice Services loan calculator to work out what your monthly repayments might be for various loan amounts, repayment periods and annual interest rates. This could help decide whether you can afford the repayments, and help you compare different loans. Click here to use this tool.