Borrowing
Think First ...Before you borrow any money including signing up for a credit card, bank loan or store card, or adding more debt to an existing card or loan
Do you really need to borrow money and can you afford to repay it.?
Learn how to work out the true cost of borrowing- you will be surprised what it includes ...
If you do need to borrow money shop around for low cost credit
Be careful when borrowing from family or friends
Avoid illegal money lenders (loan sharks) and high cost credit
Think Before you borrow
We all sometimes end up spending far more than we ever mean to
Getting credit might look fast, easy and good value - but paying it off can be slow, painful and costly.
There are times when borrowing money does make sense , but there are so many different types of loans and interest rates that its hard to work out the best deal,
However if your spending exceeds or is close to your income already, you should think very carefully about whether you really can afford to borrow more
Also bear in mind that paying back loans and credit cards may become a problem if, for example, interest rates go up or you lose your job.
The Money Advice Service: Debt test will help you check whether you have - or are likely to have - problems with borrowing
The true cost of borrowing
It is important that you understand the true cost of borrowing and that it takes into account
- The loan amount
- If any fees are added
- How often a repayment has to be made
- How long it will take to repay the debt
- The rate of interest you'll be charged
- The total amount you will have to pay to the lender.
For example
| Loan term | Amount borrowed | APR | Monthly repayment | Total amount to repay |
| 3 years | £5,000 | 11.72% | £165.40 | £6,631 |
| 5 years | £5,000 | 11.72% | £110.52 | £7,298 |
If you do need to borrow money for an essential item , before looking to borrow from a bank or other financial institution, it is worth seeing if there is any alternative help available to you - for example
Low Cost Credit
Credit Cards
Depending on your credit history you could get a new credit card
Credit cards offer various deals including 0% interest on balance transfers and new transactions for a period of time . This can be a cheap way to borrow
To find the best rates and deals try a comparison site such as money supermarket
Be aware that after the introductory period the interest rate will shoot up and it will cost you a lot more
Credit Unions
Credit unions are independently-run local co-operative organisations that offer access to, savings accounts, loans, current accounts and payment cards, and budgeting advice.
You will also need to become a member of a credit union and may have to pay a small joining fee
Credit Unions are monitored by the Financial Services Authority.
The amount of interest that Credit Unions can charge on their loans is capped by law; this often makes them a good value alternative to high street lenders. Credit union loans have no hidden charges, no penalties for repaying early and include life insurance for the loan as standard
Find further information on credit unions
Building your credit score
Everyone should make time to check and manage their credit score regularly, as it can affect your ability to borrow money or access products such as credit cards, or loans. You can check your score for free on sites such as Experian and if it isn't in the best shape, there are things you can do to improve it. We'll show you some ways to improve your credit score today.
Illegal money lending and high cost credit
Loan sharks are illegal money lenders. They may appear friendly at first but can use intimidation and violence if payments are not made.They may be a friend of a friend or someone you know in the community. If your friend wants to charge you interest then it is best to avoid it.
The England Illegal Money Lending Team (IMLT) have released an impactful new video, which aims to bring awareness to the issue of how parents are affected by loan sharks. The short dramatic video shows the devastating effect of illegal money lending, and is part of a larger campaign to raise awareness of the rights of victims, and the help available to them.
The video is now available to view at stop loan sharks.
Report a Loan Shark - You should report any loan shark to the Illegal Money Lending team and contact the police if you are in immediate danger. For confidential help and advice, contact the Illegal Money Lending Team.
Alternatively you can:
- Telephone: 0300 555 22 22(local call rate, including inclusive minutes from mobiles)
- Text: 'loan shark' + your message to 07860 022 116
Find out further information on loan sharks
Doorstep credit/loans
It's not a good idea to borrow money from people who come to your door. You probably won't get the best deal and, if they do not have the right licenses, they may be considered a loan shark.
However, there a number of companies that are licensed to offer home-collected credit. They often offer loans at high interest rates to people with a poor credit history.
Before you borrow any money, you should look to see if you could get a better deal on the high street or over the internet. There are a number of comparison websites that can help you compare the full cost of loans offered by different companies, even if you have a poor credit rating.
Buying on hire purchase
Hire purchase is an expensive way to buy goods, before signing any agreement it is worth considering your other options first.
When you buy an item using hire purchase you will be asked to sign an agreement. During the term of the agreement you are hiring the item and agreeing to pay for it in pre-defined amounts of money.
Such agreements are different from other credit agreements as you do not own the item till you have paid for it in full. Therefore you cannot sell item until the money has paid off.
However, if you are struggling to pay the monthly amount you can end the agreement and return the goods.
If you end the agreement, you will still have to pay half of the payments.
If you fall behind on your payments, a creditor may ask you to return your goods.
However, if you've paid more than a third of the total debt, they have to go through the county court first.
If you've paid less than a third of your debt, a creditor only needs a court order when they want to remove goods from your property.
But this is not necessary if they are in a public place. For example, if you have a hire purchase agreement on your car, a creditor can remove it from the street without a court order.
If you would like further information, you might find the links below useful:
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