How to borrow safely

Very few of us can avoid borrowing money at some point or another. Unless you are lucky enough to be born into a rich family, you will probably look to borrow money from quite a young age to study at university, to buy a car or to finance a holiday.

As for buying a home, who can afford to do that without borrowing money as part of a mortgage? Although borrowing is unavoidable, it is often a very positive and necessary action to take – as long as you do it safely.

If you need to borrow a sum of money, however much, it pays to do your research first. By being aware of all your options, you can save yourself a considerable amount of money by whittling down the right loan option for you. This involves a number of variables that are specific to you, including the amount you need to borrow, how quickly you can repay it and your credit score.

What is the best borrowing option for me?

If you only need to borrow a small amount, the cheapest way to do this is to borrow from your bank by arranging an overdraft. Your bank won’t charge you a setup fee for this, and interest rates are far lower than those of any payday loan company.

If your bank won’t give you an overdraft, however, or extend the one you already have, your next best bet is to take out a credit card which offers zero percent interest for the first six months and put all purchases on that. If you take this option, you do need to be disciplined about paying off the balance before the interest-free period is over if you want to avoid higher interest rates.

If you want to borrow money in order to buy a car, it is worth considering hire purchase or personal contract purchase (PCP). Check the interest rates being offered to you, first. If they are higher than a loan from a bank or building society, borrow your money from them instead and pay for the car upfront.

Secured homeowner loans

Secured homeowner loans are a great solution if you need to borrow a larger sum, perhaps to consolidate debts, to buy a new kitchen or for other home improvements. You could increase your mortgage or even remortgage your home, but you will need to have sufficient equity to do this.

Secured loans are also a viable option if you wish to borrow a large amount of money but you have a less than perfect credit score. Your property is offered as security to the lender, who can take action to repossess the property if you fail to repay the loan, just as with a mortgage. If you are confident that you can meet the repayments, homeowner loans can be very useful.

Again, it pays to shop around. Most lenders will charge an arrangement fee, and you may have to pay to have your property valued. As always, compare the different interest rates that lenders are offering. Be a wise borrower and you will find that you can save yourself a considerable sum of money.