At times, borrowing a small amount can be more complicated or more expensive than availing for a larger loan. Here is a guide on some of the cheapest ways to borrow if you only need a small amount.
What are your options?
If you wish to borrow less than £1,000 you have some options:
- Personal loan
- Credit card
- Friends or family
Each has an effect on your credit record in different ways, and costs various amounts of money, and has numerous pros and cons.
Should you get a payday loan?
Payday loans or short-term loans are very costly and can hurt your credit record so it should only be considered as a last resort.
The options listed below are cheaper and are better for your credit record compared to a payday loan, so examine each one first.
|Can improve your credit record||Need strong credit to apply
|Quick to apply for||Only for sums over £500
|Regular repayments||More expensive rates
You could borrow between sums between the amounts of £500 and £35,000 with the use of a personal loan, so it is still worth contemplating even if you would only want to borrow a small amount.
How much will it cost? For a smaller loan, you may need to pay a higher rate since the best rates are for bigger loans that are usually between £7,500 and £15,000. Some lenders do not lend amounts that are less than £1,000 too, so you may have lesser choices.
How long will it take? Small loans are no faster than bigger loans. After applying for the loan, you should know whether your application has been approved within 24 hours. The money could then be credited to your account in one or two days.
Your credit record: To receive the best rates, you need a strong credit record. The loan will be included on your credit report and may restrict how much more you can borrow, but handles your loan well and it will improve your credit record.
You could apply for a guarantor loan rather than a standard personal loan if you have a poor credit record but you will require the help of a family member or a friend.
You could also study at bad credit loans. They are more costly than standard personal loans. However, they are more likely to consider your application if you have experienced credit issues in the past.
|Can improve your credit record||Withdrawing cash is very expensive
|Quick to apply for||Need strong credit for best cards
|Cheap option if you get a 0% card||Can take a while for a card to arrive
A credit card could be an easy and a quick way for you to borrow a small sum of money.
Most credit cards offer credit limits of several hundred pounds or more, and you can decide to borrow exactly the amount that you need.
How much will it cost? With a 0% purchase card, you can dodge paying any interest. Alternatively, you could transfer money into your account for a small fee using a 0% money transfer card. However, withdrawing cash from your card is very expensive.
How long will it take? If you already own a credit card, you can use it straight away. A 0% money transfer, on the other hand, usually takes around two to three days. If you need to apply for a new card, then it could take more than a week to arrive in the post.
Your credit record: You need to have a strong credit record to receive the best cards. All your credit cards appear on your credit report but if you make your payments on time, stay within your credit limit, and use the cards properly, they can help in improving your credit history.
|Quick if you have existing account||Need a bank account
|Flexible||Need a strong credit record
|Some banks offer 0% rates||High fees if you go over your limit
With an overdraft that is approved, you can borrow from your bank account by using your debit card or withdrawing cash.
How much will it cost? For small amounts, some banks offer 0% overdrafts which can make this option one of the cheapest ways to borrow. Standard overdraft rates are around 15-20% APR. However, other fees may apply.
How long will it take? If you already own a bank account, an overdraft could be included the same working day. However, if you have a low income or bad credit, it can take longer.
Your credit record: Once approved, your overdraft will be added to your credit record which could decrease the amount that you can borrow. However, if you stay within your limit and manage your overdraft well, it will improve your credit record.
See: What is an overdraft?
Friends or family
|No impact on your credit record||No formal loan terms or rights
|You can agree a loan term||Owe money to friends or family
|Can be cheapest option||Need willing friends or family
Opting to borrow money from family or friends could be cheap and flexible. However, it is not always the best option.
How much will it cost? This will depend on what you agree with the person lending you the money. However, borrowing from family or friends could be your option that is cheapest.
How long will it take? If the person you are asking to borrow money from has the money ready, it could be the fastest option. Equally, if they would need to borrow or transfer or the money themselves, it may take longer.
Your credit record: Family and friends are less likely to bother about your credit record and borrowing from them will not display on your credit record so it will have no positive or negative effects on your credit history.