If you’re seeking to borrow a smaller sum of money, there are several paths open to you. But wait for a second, how do you know which one to take? Relax, the Money Guru will enlighten you and help you choose the wisest path for you.
What is a small loan?
Small unsecured loans
This option doesn’t require you to provide any security (such as your house) due to the loan amount being small. However, in some cases, it could work out as an expensive option.
If you plan to borrow as little as £250-£500 for example, the APR will usually be a lot higher due to the low amount. With this in mind, the benefit of an unsecured small loan really depends on the amount you’re looking to borrow.
Short term loans
A short-term lender will let you borrow £50-£1000 over a very short term, usually no longer than a month, in return for a very high-interest rate. Generally speaking, with an average APR of 2,255%, borrowing £100 for 30 days will cost you around £30.
As this is a very expensive form of lending, it should only be used in an emergency. You must also make sure you’re able to repay the loan on time, or you could incur serious charges.
Credit card loans
If you take out a loan using a credit card, it’s important to do your research when choosing your card. Some credit card companies offer 0% interest on purchases as long as you repay the loan during the agreed interest-free period. However, it’s important to remember that this 0% interest rate only applies to purchases, not cash withdrawals.
Most current accounts come with an overdraft, meaning you can overspend on your account up to a certain agreed amount. This can act as a simple small loan and will usually be interest-free, if authorised by your bank.
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Written by Robert Bester
Published on 20th July 2016