Loan Alternatives

Depending on your circumstances and requirements, there may be a more cost effective means of borrowing money than getting a personal loan.

You need to consider how much you need to borrow and over what period of time.

Below are three alternatives to a personal loan with suggestions as to when they may become a preferred option over a personal loan:

Credit cards

If the amount to be borrowed is for a few thousand pounds or less, and you need to borrow money over the short term, consider a credit card.

There are a number of cards available offering 0% on purchases for an introductory period. So, even if you wish to borrow money against the card for a year (assuming you made a purchase on the card, not a cash advance), and you paid off the card at the same rate as you would have paid off an equivalent loan, you would make a considerable saving.

The possible disadvantage of a credit card is of course that you need to be disciplined in paying off the borrowed amount. Unlike a loan where a regular monthly payment must be made, the repayment amount on a credit card is down to you (subject to the minimum monthly payment). However, it is possible to set up a monthly direct debit payment to ensure you make regular payments against your card.

Then again, the fact that repayment amounts are at your discretion can also been seen as an advantage as you can adjust your payments to pay off the loan more quickly, if circumstances allow, or perhaps lower the repayment one month if unforeseen circumstances leave you short of money.

Another consideration is that you may benefit from additional 'perks' offered by some credit cards. For example, cash back on purchases and insurance cover for items purchased with a card.

If you do decide to use a credit card instead of getting a personal loan, make sure you are very selective in which card you go for. There is not point getting a card that charges you interest at 17.9% APR when you could get a personal loan at half that rate.

Bank overdraft

On the whole, bank or building society overdrafts tend to charge an interest rate far greater than that of a loan. However, you usually only pay interest for the days you are overdrawn.