Borrowing money

The extra expenses when you go through treatment for cancer can be significant. As a result, you may consider borrowing money to help pay the bills. CLIC Sargent has been working with the Money Advice Service to develop podcasts which offer information and advice about managing your finances.

Borrowing money

Borrowing safely

This podcast offers advice about what to consider if you need to take out a loan.

You can also read the information below:

Risks of borrowing

Any form of borrowing involves risk, but some loans may be more dangerous than others. It could even result in you losing your home or facing bankruptcy.

If you are considering a loan make sure you arm yourself with all of the facts first. All of the following loans involve risks that could ultimately be an expensive and dangerous way of temporarily fixing your finances.

Many of them should be seen as a last resort and should be investigated fully before you make any decisions.

  • Loan sharks: these are illegal and involve someone offering a loan at extremely high interest rates
  • Home credit or doorstep lending: this is a type of doorstep lending that is normally very expensive, even for just a few days
  • Second charge or second mortgages: these are referred to as a 'secured loan', which means they use the borrower's home as security
  • Logbook loans: these involve borrowing money using your car as security
  • Payday loans: these are short-term loans that are normally paid back over a month or two but with very high interest rates and other potential risks
  • Pawnbrokers: you either leave a valuable item as security for a loan or it is sold in return for cash, but interest rates are generally quite high
  • Debt consolidation loans: this is when you consolidate your loans into one big loan, normally secured against your home
  • Peer-to-peer loans: also known as 'social lending', people who want to borrow money are put in touch with those who will lend it. There could be fees involved, and again, they will generally have high interest rates.

Types of loan

Loans normally come with a large amount of small print. When you haven't got the time to read it all, or you don't understand what it all means, you could end up paying high interest charges and owing more money.

There are safer forms of borrowing that you can apply for from the Government if you receive a qualifying benefit. Find out more in one-off grants and payments.

Secured loans

Secured loans (often called a 'further advance') are mostly used for borrowing large amounts of money over a long period of time.

If you fail to keep up the repayments then the lender has the right to force you to sell the asset against which the loan is secured (for example, your house). The interest rates on these loans tend to be less than unsecured loans.

Unsecured loans

Interest rates on unsecured loans tend to be higher than other loans because the lender relies on your promise to pay it back. If you want to repay the loan early you may have to pay a penalty.

Credit Union loans

Credit Unions are regulated by the Financial Conduct Authority (FCA) and are owned and run by members, for their members.

You may be able to borrow money at a much lower interest rate than other loans. This will be upon the agreement of the Credit Union, once they are satisfied that you can afford to make the repayments.

Overdrafts

You need to have a bank account in order to receive an overdraft. Once you've had your overdraft authorised you will normally be charged for each day you go overdrawn, a monthly fee, or a transaction fee.

Interest rates for overdrafts are generally higher than for personal loans and are not recommended for borrowing large amounts.

If you are a student you can normally able to arrange an interest-free overdraft with your bank. This will normally be repayable around a year after you graduate and you will decide with your bank how much you will pay back each month.

Buying on credit

There are various ways people buy on credit. For example, if you're paying for goods or services using credit cards, store cards, hire purchase or mail order catalogues.

If you don't pay your credit card bill on time then you can be charged a late payment fee as well as interest on the whole amount. If you repeatedly pay your bill late then your credit card provider may increase your interest rate.

Credit sale agreements

This is where you buy goods at the cash price and pay it back over time. There are various types of credit agreements and they all come with different conditions.

You may find some interest-free deals available, but this is normally as long as you make your payment on time.

Borrowing from family or friends

If you are considering borrowing money from friends or family, you need to have a plan in place for how and when you start to pay them back.

Advantages

  • It's unlikely that they will charge you interest, and if they do, it will probably be low
  • Together you can decide when and how you pay them back
  • There will be no early repayment charges
  • You won't have to fill out any application forms.

Disadvantages

  • If you struggle to pay them back on time, you could risk your relationship
  • You may always feel in debt to them, even when you've paid them back
  • You may feel as if you're not able to spend the money as you wish, especially if they want you to explain where the money has gone
  • You may find yourself being asked for the money back at short notice
  • If you decide to borrow money in this way, the best thing to do is to work out a budget and decide how you are going to spend the money. Anything left over you can give back as part of your repayment plan.

More information and advice

It can be hard to know who to turn to for advice. You could start by speaking to the Money Advice Service, which offers free and unbiased information. Call the advice line on 0300 500 5000 (English) or 0300 500 5555 (Welsh).

You can also get lots of information and advice about finances and debt from the Citizens Advice Bureau (CAB).

To find your local CAB in England or Wales, visit the Citizens Advice Bureau website. Or you can call 08444 111 444 for England or 08444 77 2020 for Wales.

For Northern Ireland, visit the Citizen Advice website, for Scotland, visit the Citizens Advice Scotland website.

Updated August 2016, next review due 2017.

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