Alternatives to Personal Loans
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
23rd November 2020
2 minute read
A personal loan is just one way of raising enough money for whatever venture you have in mind.
This could be for improvements to your home, a new car, an unforeseen circumstance, or to pay off existing debts.
Personal loans are an individual thing. Reasons differ as to why loans are sought, and these combined with your current circumstances and credit history all affects the amount you can secure, along with interest rates and payback time.
Why do you need a Personal Loan?
Before jumping in hooves-first and going straight for a personal loan, take a moment to meditate upon your options. Work out precisely how much you need to borrow, and what you need it for.
Depending on your circumstances, a personal loan may not be the best financial option for you, so read on to discover the Guru’s wisdom on alternatives below.
Alternatives to a Personal Loan
Depending on your reason for a personal loan, and the amount you wish to borrow, you may be able to make your purchases within the limit of a 0% credit card. If this is the case, be sure you can pay off your full balance before interest kicks in. Credit cards are sometimes used for one-off purchases, or even to consolidate debts.
You could consider a temporary overdraft facility on your bank account, agreed with your bank in advance. An overdraft enables you to go into ‘debt’ with your bank, be charged interest during this period and repay it at an agreed time. Amounts granted depend on the individual’s personal circumstances, and often come with high interest rates.
Homeowners may have the option of refinancing their mortgage. This may mean taking out a certain amount of money at the expense of paying a higher mortgage. The pros and cons of such a move depend on several individual factors. When deciding if a mortgage refinance would work for you, you would need to check fees, compare monthly payments of different mortgages/interest rates, to see if you would be better off. A further comparison can then be made with available personal loans and alternatives to these.
You may be able to secure a pay advance from your employer. Much depends on the amount you wish to borrow and your employer’s regulations on pay advances. These are often paid back in instalments from future wage packets, although some employers may insist upon a lump sum by an agreed date.
If you are receiving income support, income-based employment and support allowance or job seeker’s allowance, you may be able to apply for a budgeting loan. You can apply for a budgeting loan through your local Jobcentre Plus. These are usually paid back in instalments taken directly from benefit payments.
Local Welfare Assistance
If you are considering a personal loan for everyday essentials such as food or clothing, your local area may have a welfare assistance scheme. This may come in the form of a loan, vouchers, or secondhand goods, depending on your local scheme and your own requirements.
An alternative to other lenders such as banks, credit unions are a non-profit method of saving or loaning money. Run like a co-operative, there will be criteria to become a member of a credit union. You may have to be a member of a specified organization or business, or save for a certain time before you are eligible for a loan.