We often hear people asking about the best way to borrow money, and we’d love to give a you a simple, one-size-fits-all answer.
Unfortunately though, there’s not an answer that works for everyone. The best way to borrow money can differ wildly depending on your age, what you want to borrow money for, your income and your credit score.
There are, however, a few tried-and-tested methods of borrowing money depending on your situation.
(This article will assume you’ve exhausted – or don’t have access to – the classic fail-safe: the Bank of Mum and Dad (or any family member or friend for that matter). Although we don’t recommend putting your friends and family out when you need to borrow money, if you’re in a real pickle or need a short-term helping hand, then always make sure you ask your close friends and family first. Not only will they probably be glad to help but you’ll save a load of money on interest rates – although, you should use some of the money saved to buy them a nice thank you present!)
Best way to borrow money for purchases: Credit Card
As long as you’re considering the borrowing as a short-term solution, you can’t go wrong with a credit card. Used correctly, they’ll help you rebuild your credit score while also letting you borrow money to make purchases. You can use them to buy anything from your food shopping to new cars – but beware, the interest rates are often quite high. If you don’t think you’ll be able to pay off the full amount you’ve borrowed within a few months (ideally one month) then you might be better off borrowing money from another source.
Best way to borrow money for life expenses and worst-case scenarios: Overdraft
Again, provided it is a short-term solution, overdrafts can be a godsend (the interest-free ones especially). Not only do they allow you to have a safety net for when things get tight at the end of the month, but they also stop direct-debits from bouncing if you’re running low on money. Make sure that you’re aware of your borrowing limit though – it can affect your credit rating and result in fines if you go over it. (Plus, they’re only short-term solutions – long term use of an overdraft can get very costly.)
Best way to borrow money to pay off debt: debt consolidation loan
If you’re looking to pay off all of your debts – credit card debts, overdraft, loans etc… – then it might be prudent to look into getting a debt consolidation loan. That way, you can pay off all of your existing debts and only have one payment to worry about every month, rather than 6 or 7.
Best way to borrow a larger amount of money: personal loan
If you’re looking to borrow a larger amount of money – up to £8,000 for instance – then you’d probably want to consider taking out a personal loan. This way, you’re allowed to borrow all the money and you pay back a certain amount each month. Of course, there are thousands of different personal loan options, so make sure you check the APR and interest rates so that you’re getting the very best deal.
Best way to borrow a larger amount of money if you’ve got a poor credit score (or no credit history at all): guarantor loan
If you’ve got a poor credit score (or none at all) but want to borrow money then a guarantor loan is perfect for you.
If you’re not quite sure what a guarantor loan is, check out our in-depth overview. The quick answer though: it’s a personal loan where somebody guarantees your payments if you can’t make them, making you much more likely to be accepted for credit.
Plus, making regular payments on a guarantor loan (provided that they’re on time) can help to slowly repair your credit score.