If you’re thinking of borrowing money to help you pay for an important purchase or simply make ends meet for a particular bill, then it’s important to know that you have a lot of different options available to you. Of course, just because there is a host of different solutions out there, doesn’t mean that they’re all automatically ideal for your specific needs. If you want to avoid paying out too much cash at once, or ensure that you’re looking after your future, then you need to evaluate all of your options and find out which one is best for you.
To make the decision of choosing between loan options easier, you’ll need to look at what each choice entails, and how much you’re likely to spend before you decide what you should do next. Here, we’ll take a look at some of the different ways that people can borrow, so that you can get a better understanding of how each solution works, and what might be best for you.
In simple terms, credit cards work on a system of something that’s known as “revolving credit”. This simply means that if you have a particular credit limit, you’ll be able to choose to borrow anything up to that limit on your card at any given time. Once you’ve reached the limit on your card, you won’t be permitted to spend any more on your credit card until you’ve paid off at least some of what you have already spent.
The amount of credit that’s available to you on any card will depend on a lot of different factors and circumstances. For instance, you might find that you can only access a small amount of credit if you have a bad credit history.
Personal Loans (Unsecured Loans)
Unsecured loans or personal loans are a great way to borrow cash for larger bills or pay-outs over a specific amount of time. If you already have debt, perhaps on your credit cards that come with a large APR, then a personal loan could be a great way to consolidate how much you borrow. The interest rate will be set when you take out the loan to begin with, and the repayments will remain the same for the full term of the loan. On personal loans, interest rates tend to be lower than what you would expect from credit cards, except for when it comes to borrowing small amounts. Most of the time, loans will become cheaper the more that you borrow, up to a specific cap.
Loans from Credit Unions
A lot of people assume that they need to get their loans from banks, but the truth is that there are a host of different options available. For instance, loans from credit unions are often much cheaper than the loans issued from other providers – particularly for small amounts, and there’s no threat of things like administration costs, set-up fees, or early fees on redemption.
Often, most credit union loans will cost around 1% a month levied on the balance of the loan, while some credit unions charge more than this. However, the law dictates that the amount of interest charged by a credit union cannot be more than 2% per month.
Websites for Peer to Peer Lending
Websites for peer-to-peer lending are designed to connect savers with cash to offer, to borrowers who need to access extra capital. Often, the rates offered by these websites are far more competitive than the one that you might see at a bank. However, they also come with less protection and more risks to worry about.
If you’re thinking of using a peer to peer borrowing service, it may be a good idea to do as much research as possible in advance. This way, you’ll reduce your chances of falling victim to increased debts, and greater financial problems than you might have had when you first began. The more informed you are, the better.
Borrowing from Pawnbrokers
Finally, to most people this is a very outdated option for lending in today’s society, however it’s still something that people use today when they need to access cash for a short amount of time and they don’t want to worry about the stress of payday loans. Basically, pawnbrokers give you money in return for an item that you “pledge” or provide as a sort of security. Usually, this might be jewelry, or something of specific value.
The benefit of this option for borrowing is that you don’t necessarily need a good credit history. Because your loan is secured upon the item of value that you choose, which your pawnbroker will be able to sell if you default on your loan, they have something to protect them from risk. Often, the term of a pawnbroker loan will be around six months, though it can sometimes be longer. Additionally, you can choose to pay off the loan whenever you like to get the item back.