Here are some alternative ways to borrow money that you should definitely avoid. Staying out of the traps.
It may be a bill that you had forgotten about or a direct debit that’s gone astray. There are many reasons why may you need to get hold of some money quickly and it happens at a time when you have the least amount of money in the bank.
It happens to all of us at some time or another. The best way to avoid it is to be financially aware and to organise your money so that you have emergency funds in the bank or you don’t spend more than you have so you don’t go into the red.
However, not all of us are so organised! So it’s down to me to help you make sure that you are not getting yourself deeper into debt by being aware of the most expensive ways of borrowing money that you should try to avoid so that you can keep yourself afloat.
This is where you can either leave an item of value that you own or sell the item to the Pawn broker in return for a loan of some money. They lend money quickly and without any credit checking, however they charge a higher rate of interest than many high street banks. If you would like to know more about them please see the Money Advice Service website.
Home credit – Doorstep lenders
This is where you borrow money and your lender calls to your doorstep to collect your repayments. They are usually for smaller amounts like up to £500 however the interest rates are incredibly high, anywhere between 272% and some as high as 1,500% according to the Money Advice Service. All Home Lenders have to be authorised by the Financial Conduct Authority, FCA, and carry this identification. If they don’t have one then they are operating illegally so you should avoid dealing with them.
You’ve seen the TV advertising and it all seems so easy, but wait, where’s the catch? The catch is in the amount of interest that they charge. Unless you are positive that you can pay the loan off in full and in time, then you could get caught in the spiralling repayment costs, like Home Credit the interest rates can be as much as 1,500%. They are what they say, a short term loan in order to cover you until you get paid. On the repayment date the lender will take the full amount you borrowed plus the interest directly from your account.
The other name for this is an unplanned overdraft. Unless you have a pre arranged overdraft with your bank or building society; in which case you have an authorised or planned overdraft; if you spend more than you have in your bank account, you will have to pay extra charges for the money you have essentially borrowed from them without asking beforehand. They may charge you a daily fee for example £5 until you have paid this amount back in so it can be expensive if you start relying on it.
These are illegal lenders who are out to target low income and desperate people. These people are not authorised by the FCA. They may seem friendly to begin with and will stay that way if you pay your repayments on time, however the interest rates can be incredibly high. According to Citizens Advice Loan Sharks can often take illegal action to collect the money from you which includes threatening violence or taking your valuables from you. If you know about a loan shark or have borrowed money from one you can report them anonymously going to the HMRC website.
So, to avoid using any of these, a good tip is to start a monthly budget and put away some cash each month to pay for the unexpected. Have a look at my free monthly budget planner to give you a great start.