Borrowing

Do I really need to borrow?

Borrowing – especially when it is linked to buying things for yourself or the home – may not be the best choice for you. Check these other steps first before making a decision

Am I borrowing for something I really need? Before you make any decisions think about your needs and wants – a need is something you have to have for your health and basic well being e.g. having to replace a broken cooker / a want is something you would like – maybe a new TV or outfit. If it is a ‘want’ it can usually wait.

Can I get benefits, emergency help or grants? If it is something essential there are different sorts of help available, e.g. to help buy white goods or beds and bedding or essential clothing, food and heating bills. Try your local Citizens Advice or your landlord if you rent from a housing association. Also look at our page Help in a crisis

Can I get what I need free or recycled? Check out websites like Gumtree, Freecycle and Ebay or your local charity shops and furniture recycling stores – they can often provide good quality white goods and furniture at a fraction of what you would pay new

Can I wait and save? If it is a want and not a need can you wait to get it? Try setting aside a small amount each week or month – it soon adds up and is a lot cheaper than paying back a loan

Can I borrow interest free? If you have been on certain means tested benefits for at least 6 months check if you can get a budgeting loan from the DWP. You still have to pay back but you won’t be charged any extra interest costs – click here for more about budgeting loans from the DWP

Different ways to borrow

If you have no or a poor credit history you are likely to find it harder to borrow from banks or building societies. This does not mean you have to spend a lot – compare some of the ideas below and look at Citizens Advice for more detailed guidance on different types of borrowing

Credit Unions

These are not for profit organisations that give access to saving and fairer borrowing. Each Credit Union is different so you need to find you local one to see what they can offer. To find your local Credit Union click here

If you rent from a housing association ask your landlord if they have a Credit Union you can join. They often have incentives and extra support for tenants

Other not for profit

These are other community organisations that help people avoid high cost borrowing. Fair For You has a user friendly website where you can quickly find out what you can borrow for  home goods. Click here for more information

If you are unable to get fairer credit or help from a high street bank or building society there are other options – but they are usually much more expensive and may be very difficult to pay back unless you are sure you can afford.

MORE EXPENSIVE WAYS TO BORROW

Payday loans

These are short term loans. You can get them online, over the phone and in local money shops. They usually charge a flat fee and they can be cheaper than borrowing on overdraft (especially when the overdraft is not authorised by the bank) BUT – they are meant for short term use only (2-4 weeks). Unless you have a way of repaying the loan very quickly the first time it is due they should be avoided. For more information on payday loans including what to do if you have one, see this factsheet from the National Debtline

Doorstep lenders / Catalogues

These can feel more  convenient because you can find out what is on offer from home and the lender may be someone you  know who lives locally. BUT the interest costs are much higher and you can be tied into  borrowing for a long time. Plus the goods they are selling in the catalogues are likely to be more expensive than what you could find by shopping around online or in the high street.

Rent to buy

This is when you buy an item like a television on credit and you pay back over a period of time. Again these are likely to expensive – not just because of the interest costs but because the goods you are buying are not competitively priced.  Rent to buy contracts often include  add-ons like insurance that increases the costs of borrowing.

Know the cost of borrowing

The cost of what you borrow is made up of:

• Interest rate
• Other charges you have to pay – e.g. setting up fees
• How often you make repayments
• How long you borrow for

All these charges together make up your APR (Annual Percentage rate)

The lower the APR the cheaper it is.

Here is an example of a £300 loan paid back regularly over 1 year with no set up fees:

You can see that the interest charges quickly add up – with the costs of the highest one being 15x more expensive!

Additional costs to watch out for

The APR does not include the additional costs if you:

• Fall behind with repayments
• Miss a payment
• Rollover a short term loan (payday loan)
• Buy from a catalogue or on hire purchase / rent to own (the costs of the goods are likely to be much higher than in the shops)
• Take out damage liability insurance when you purchase – this may be hidden in the overall ‘service’ – but remember you will be paying extra

Loan sharks

Loan sharks are illegal money lenders but they may present themselves as ‘friend’ or ‘helper’. They usually offer cash with little or no paperwork. The amount you owe keeps growing and they often use threats of violence and intimidation when payments are missed.

If you have borrowed money from a loan shark get help now – free confidential help is available 24 hours a day: Telephone – 0300 555 2222 e-mail: reportaloanshark@stoploansharks.gov.uk or by text to: loan(space)shark(space) + your message to 60003 Everything is confidential

If you are aware of a loan shark operating in your community – report it now using the contact details above.

Credit scoring

When you borrow money your lender will check your credit score – this tells them about your previous record of borrowing money and helps them work out the likelihood of your being able to pay back what you are asking for. Lots of things affect your credit score.

Here is a useful guide to credit ratings and credit scores 

Useful websites

For lots more helpful information on borrowing and comparing costs

• Money Advice Service Loan costs calculator
• Advice guide: Borrowing money

You can also find further information about debt at debt camel, a website written by a CAB adviser with lots of useful resources and template letters