While you may think that only borrowing a small amount can be done easily at a relatively low cost you still need to be pro-active to avoid being ripped off. We explain how to get the money you need with minimum cost.
Payday loan companies constantly advertise a quick and easy way to borrow small amounts of money, but with interest rates in the thousands there are much better options available to the savvy borrower.
Here are your main options - you should compare the total cost of each and go with the route that gives you access the money you need for least.
1. Use an existing credit card
Credit cards are not only suitable for large purchases but can also be used to borrow smaller amounts on a short or long term basis.
Providing you choose a card that doesn’t charge a hefty rate of interest you have a convenient and flexible way to borrow.
Most credit cards will also give you a certain period of time to repay your borrowing before you start accruing interest charges – this tends to be around 50 days, giving you time to get the cash you need to clear it.
However, make sure you check the standard interest rates charged by each of your credit cards and opt for the cheapest just in case you need to pay interest.
If you have time then you could consider applying for a 0% purchase credit card so you don’t pay any interest on your borrowing – this will mean you are able to spread the cost should you need to.
If it’s likely you will take several months to repay what you spend and you don’t get a 0% purchase card, you may want to consider transferring the balance to a 0% balance transfer or low interest credit card to avoid accruing steep interest charges.
Borrowing cash from your credit card is an expensive choice as you will immediately pay a flat cash advance fee and then a higher interest rate until you repay in full.
Instead, you should investigate whether your credit card provider offers 0% money transfers and consider going down this route instead.
Read our article: Can I Transfer Money from my Credit Card? to find out more about money transfers.
2. Use an overdraft
One of the benefits of current accounts is the flexibility that their overdraft facilities offer, especially as there is no differentiation between borrowing cash or making a transaction using a debit card.
Interest rates are also usually calculated on a daily basis meaning you’ll only pay while you’re actually overdrawn so if you can repay what you borrow quickly you’ll be able to minimise the cost.
Many overdraft current accounts also offer a small 0% overdraft meaning if you only need to borrow a small amount you may be able to without charge.
However, beyond this the rate of interest charged is likely to be significant (usually higher than you’d pay using a standard credit card) so you need to be careful. What’s more, some bank accounts also impose a flat daily charge on borrowing from an overdraft which can make using them much less attractive.
Check your accounts ts and cs or compare current account overdraft charges using our Overdraft comparison table to find out how much you’ll have to pay .
You can also read our article How to Work Out What Your Overdraft Really Costs for help deciding whether this is an affordable option.
3. Borrow from friends
If you only need a small amount of cash, approaching a member of your family or a close friend could be the cheapest option.
They are also much less likely to charge anything close to the rates you’d pay to a payday loan company online.
Make sure you agree a repayment schedule up front – and keep to it!
