In the event of being short on cash, there are many different ways to borrow money. Some of the methods will provide advantages over others. Depending on the circumstances some forms of loans might work out cheaper than others. Some loans might be easier to qualify for, whilst others could offer greater flexibility.
This blog post will take a closer look at five of the most common ways to borrow money.
1. Borrow from Friends or Family
Initially this might sound like the perfect solution. Very often this type of borrowing is less formal than the financial institutions. Many times there is little or no interest charged; however, it should be noted that this isn’t always the case.
Whilst there clearly are positives to this course of action, it is not without its downsides. Quite possibly the biggest of these is mustering up the courage to ask for the loan in the first place. Depending on the situation this can be a source of discomfort or even embarrassment.
Another negative to this type of arrangement will potentially rear its ugly head at a later stage. This happens if there are issues in paying the money back. Even the strongest of friendships or family ties can be put under real pressure during this situation. For this reason alone, many people prefer to organise their borrowing from a financial institution.
2. Bank Lending
This type of lending has been around for hundreds of years and can take the form of many different guises. Some of which can include:
- Personal loans
- Motor finance
Some of this form of borrowing is done on an unsecured basis. This means that the borrower will not be using any of their assets as collateral against the loan. This can be perfect for individuals who don’t wish to or can’t offer any security in exchange for the loan to be able to apply.
Other types of borrowing that banks and financial institutions offer come under the umbrella of secured loans. The single biggest type of secured loan will be when a person is looking to buy a property. This method is called a mortgage, with the loan company offsetting their risk by the value of the home. These loans will normally run for a very long period of time and can involve huge sums of money.
Borrowing money for a motor vehicle can be done either as a personal loan (unsecured) or as a hire purchase arrangement (secured). This will depend on where the money is raised from. Most UK banks will tend to offer unsecured loans for this method. Whilst the motor finance companies will tend to secure the money lent against the actual vehicle. It should be noted that this is not set in stone and can sometimes vary.
3. UK Payday Loans
This method of borrowing is much newer than the ones discussed above. UK payday loans are short term loans designed in many cases to help assist in exceptional circumstances. The money that is received in this way can often help out with unexpected costs.
Most of the time, this loan will be for somewhere between 2 – 4 weeks. Once the individual is in receipt of their salary they can then pay off the loan. Very often the money from this type of loan can be made available quickly, which can be ideal for those emergency situations.
4. Credit Card Borrowing
It should be noted that this method is different from just using your credit card to buy goods or services. There will normally be a facility to take a cash advance from your card; however, these tend to be at slightly higher rates than your normal card transactions.
Whilst this type of borrowing can be considered very flexible it is not without its drawbacks. One such issue that can arise is that people will very often pay only their minimum balances. This of course is perfectly acceptable, but it should be noted that the interest charges that are levied on the remaining money can be quite high. Because credit cards are a revolving form of credit, it can take a long period of time to get balances back down to zero by paying this way.
5. Pawn Shops
One of the oldest methods of borrowing money is to loan your goods to an organisation. This is referred to as pawning. The individual will take their items to a pawnbroker who will put a value against the item. If the price is acceptable the items can be left with the broker and the cash taken.
Normally the seller will have a pre-determined timescale in which they can return to buy back their goods. If and when they return to buy back the goods they will be charged a higher fee than they received. This will include the interest element that has been accrued. Once the agreed time has passed the pawnbroker can sell the items themselves, with the profits taken to cover their costs.
Pawn broking is big business in the UK; however, many towns and cities have seen the names of these organisations change a little over recent times. In many respects they have become very modern retail outlets for nearly new and second hand goods.